Fed’s Daly and Hammack say more rate increases are likely needed, citing AI-driven price pressure

San Francisco Fed President Mary Daly said further interest-rate increases will likely be needed to bring down inflation^1,2.

Daly said Thursday that the central bank will likely need to raise rates further⁴.

She said inflationary pressure in the US is still rising, making further policy tightening likely^5,6.

Daly said there is no doubt that artificial intelligence has fueled price pressure^3,7.

Cleveland Fed President Beth Hammack reiterated her view that higher rates are needed to combat inflation amid demand pressures⁸.

She said policy needs to become restrictive to lower inflation¹³.

Daly repeated in a video interview that further interest-rate increases will likely be needed to bring down inflation².

How fast, and why

Hammack said she does not believe the Fed needs to shift to more aggressive rate increases^9,11.

She signalled support for a gradual path of hikes and said she favours smaller moves^9,13.

Hammack tied part of the inflation problem to spending on AI, which she said is keeping inflation sticky¹⁰.

She called for higher rates to bring inflation back to the Fed’s 2% target, warning about persistent price pressure¹².

Chicago Fed President Austan Goolsbee also signalled the need for a restrictive policy as inflation persists¹².

Daly’s and Hammack’s remarks put two more officials on record for further tightening, with both pointing to AI as a source of inflation^3,10.

Hammack’s remarks on Thursday repeated a call for higher interest rates that she has made before^8,10.

Why it matters to investors

Bets on Fed tightening gathered pace after the remarks, and the Australian dollar slid to a 10-month low¹³.

The euro fell sharply against the dollar on the day, while Wall Street stabilised after the sell-off in Nvidia shares⁵.

Daly also pointed to tighter financial conditions alongside the rising price pressure⁵.

The officials differ on pace rather than direction: Daly sees more hikes as likely, and Hammack wants them delivered in small steps^1,9.

Investors will watch whether other policymakers adopt the same AI-inflation argument before the next decision^7,10.

Daly said the pressure on prices is still building, which makes more tightening likely^5,6.

Investors will also watch currency markets, where the euro and the Australian dollar fell as bets on Fed tightening gathered pace^5,13.