San Francisco Fed President Mary C. Daly said the US economy is good, but that inflation is the key problem. She said the bias is for rates to go up.
In all likelihood, she said, the Federal Reserve will need to raise rates. US annual inflation stood at 3.7% in the September 2026 reading, and the federal funds rate was 3.88% as of 11 November 2026 by our own measurement.
Inflation pressures
Daly said a myriad of factors are pushing up inflation, which she described as concerning. Overlapping shocks have changed the underlying rate of inflation, she said.
Demand and the labour market
Consumer spending has been surprisingly resilient. Daly said she is watching services ex-housing inflation, which is not moving in the right direction.
Employment is broad-based, with a manufacturing resurgence, she said.
Productivity and policy signals
There is little evidence yet that AI-driven productivity is higher, Daly said. Markets understand the Fed’s reaction function, she added.
Related: Hammack calls for further Fed rate hikes to curb inflation · BNR holds rate at 6.5% as inflation seen rising again
Source: Federal Reserve | Data: FRED — St. Louis Fed
