FED'S DALY: AI REALLY MATTERS FOR HOW WE THINK ABOUT POLICY IN NEAR AND MEDIUM TERM

San Francisco Fed President Mary Daly stated that artificial intelligence materially shapes how policymakers think about monetary policy over both the near and medium term. The remark signals that AI-driven shifts in productivity and labor demand are becoming an explicit input into the Fed's assessment of the neutral rate and the inflation outlook, rather than a peripheral technology story. The transmission channel runs through expectations: if AI lifts potential output growth, it can allow stronger growth without renewed inflation pressure, which affects the path of real rates and therefore the discount rate applied across equities and duration-sensitive assets. Rate-sensitive segments such as long-dated Treasuries, growth equities, and rate-dependent financials are most exposed to any repricing of the policy path that follows from such a productivity view. Traders should watch the next Employment Situation report and the upcoming core PCE release for evidence on whether labor market softening or productivity gains are shaping the inflation trajectory.

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