Fed’s Daly: Bond Yields Signal Market Uncertainty Amid Policy Shifts

Late Thursday, San Francisco Federal Reserve President Mary Daly commented on the uncertainty surrounding White House trade policies, which have led the Federal Reserve to adopt a wait-and-see approach. With steep import tariffs looming, policymakers are evaluating their potential ripple effects on the US economy, as markets reflect this uncertainty through rising bond yields.

Daly highlighted that the labor market remains in good shape, though concerns about inflation persist among workers. She acknowledged that the Fed’s 2% inflation target is unlikely to be met this year, despite notable progress in taming price increases. The labor market, while slowing, maintains a balance that supports the long-term goal of 2% inflation.

The increase in bond yields, Daly observed, reflects markets’ attempts to navigate ambiguity around economic and trade policies. Although the US economy and Fed policy are currently well-positioned, the full scope, timing, and impact of proposed tariffs remain uncertain, making speculation premature. Businesses, she noted, are adopting a cautious approach, scaling back on risk amid these uncertainties, though deregulation and tax relief could provide a boost to economic growth.

Daly expressed measured optimism, anticipating that the Fed will continue to guide inflation downward while preserving labor market stability. She emphasized the Fed’s flexibility to adjust policy as needed to address evolving economic challenges.