Federal Reserve Bank of San Francisco President Mary Daly said on Thursday that the U.S. Treasury bond market is sending accurate signals about the appropriateness of current monetary policy, despite recent volatility in longer-dated yields.
Speaking to Bloomberg Television, Daly noted that bond prices provide valuable insight into the stance of policy, even as she acknowledged that elevated yields may partly reflect heightened demand for infrastructure and artificial intelligence-related investments. She declined to comment on the U.S. Treasury Department’s recent announcement of plans to expand buybacks of longer-dated debt, which initially drove yields lower before reversing course.
Daly’s remarks follow the Federal Reserve’s July meeting, where policymakers maintained interest rates unchanged for the fifth consecutive time. At that meeting, three officials dissented, advocating for higher rates due to concerns that inflation would not sustainably return to the Fed’s 2% target without tighter monetary policy. Since July, incoming economic data has reduced near-term pressure for a rate increase, including moderated price growth in June and July, a decline in retail sales in July, and unexpected job cuts by employers.
Traders have since adjusted their expectations for a September rate hike, reducing the probability to around 30% from over 70% at the end of July. Daly dismissed calls for preemptive policy adjustments, stating there is insufficient evidence to justify immediate rate cuts or hikes. She also pushed back on concerns about the Fed’s credibility, asserting that the central bank’s commitment to its inflation target remains intact.
Thirty-year Treasury yields recently approached levels not seen since 2007, reflecting investor concerns that inflation has remained above the Fed’s target for more than five years. Daly’s comments underscore the Fed’s reliance on market signals as it navigates an uncertain inflation outlook and evolving economic conditions.
