Fed's Daly: Some signs tariff impact on inflation starting to fade

Federal Reserve (Fed) Bank of San Francisco President Mary Daly said on Thursday that tariffs have had a clear impact on inflation, though she pointed to early signs that effect is beginning to ease.

Key quotes

Tariffs had obvious effect on inflation. 

Some signs tariff impact on inflation starting to fade. 

Middle East war ending should ease inflation pressures. 

Technology spending is pushing inflation higher. 

Many expect supply shocks to trigger temporary inflation surge. 

'Good reasons' to expect supply shocks won't cause lasting inflation impact. 

Job market unlikely to spark significant inflation pressure. 

Longer-term inflation expectations remain firmly anchored. 

Stable inflation expectations should not be taken for granted. 

Market reaction

As of writing, the US Dollar Index (DXY) trades 0.02% lower to near 99.68.

Daly flags fading tariff impact but warns on tech-driven inflation

Fed's Daly delivered a nuanced assessment of inflation drivers, with the FXS Speechtracker score at 5.4/10, slightly softer relative to the historical average of 5.6/10, signaling a modestly less hawkish tone. The emphasis that tariffs had a clear impact on inflation but that this effect is beginning to fade, alongside comments that technology investment is helping drive up inflation and that longer-run expectations remain well anchored, points to a view that current price pressures are largely supply-shock driven and potentially transitory rather than demand-led. Daly's support for holding rates steady in July and the need to gather more data suggest a cautious, risk-balanced stance that keeps the DOllar’s policy outlook in a wait-and-see mode despite lingering inflation concerns.

The FXS Fed Sentiment Index fell by 2.23 points to 138.69, indicating a pullback in perceived hawkishness even as the index remains firmly above the neutral 100 mark. This configuration underscores that, while the Fed is still viewed as operating in hawkish territory, Daly's remarks—captured by the slightly lower FXS Speechtracker score—reflect a marginal softening of the policy tone as supply shocks are framed as less likely to generate lasting inflation.