Fed's Daly says rate decision not imminent, warns on services inflation

• Price pressures linked to AI are not in doubt
• AI is only making a modest direct contribution to inflation
• The labor market sees limited effects from AI
• While inflation is a problem, AI is not the main driver
• AI valuations have been repriced, but interest and enthusiasm remain intact
• This indicates no threat to growth
• Productivity growth has positive momentum
• Substantial work is underway that could yield more productivity gains over the next one to three years
• The economy shows a stable labor market, positive growth, productivity gains, and elevated inflation
• The priority must be reducing inflation
• Fighting inflation now does not mean ignoring the possibility that productivity growth could be disinflationary
• Inflation shocks can accumulate, so complacency is not an option
• The bias leans toward additional tightening being necessary
• Inflation is spreading into the services sector
• Once services inflation picks up, it tends to persist
• Tighter financial conditions are very welcome
• However, markets cannot substitute for the Fed; price stability is the Fed's responsibility
• Financial markets are aligned with where the Fed needs to be

Daly emerges as the surprising hawk here, and that carries weight given her history as a reliable dove. When she states her bias is that more tightening will be needed, it reflects a committee-wide view rather than an outlier stance. The most striking comments concern services: inflation seeping into that sector and becoming sticky once it rises mirrors the rationale behind the Fed's 2022-23 tightening campaign. Reviving that language suggests she sees second-round effects, not merely energy pass-through. Her direct challenge to Bowman's argument about financial conditions — that markets do not perform the Fed's job — eliminates a key dovish exit. Her AI analysis also leans hawkish: optimism on productivity means rate hikes do not pose a growth risk, removing another excuse to hold steady. Combined with Logan, the center of gravity clearly points to more tightening than the 27.7 basis points currently priced for this year. The trio of Williams, Logan and Daly versus Bowman is not a divided committee; it is a consensus with a single dissenter.