FED’S DALY SAYS IT IS TOO EARLY TO SAY WHEN THE AI PRODUCTIVITY IMPACT WILL ARRIVE BUT THERE IS POSITIVE MOMENTUM FOR PRODUCTIVITY GROWTH, WITH A LOT OF WORK SUGGESTING MORE PRODUCTIVITY GROWTH IN THE NEXT 1-3 YEARS, AND THAT THE FIGHT AGAINST INFLATION SHOULD NOT MEAN IGNORING THE POTENTIAL THAT PRODUCTIVITY GROWTH COULD BE DISINFLATIONARY

San Francisco Fed President Mary Daly said it is too early to pinpoint when artificial intelligence's productivity effects will show up in the data, but she pointed to positive momentum in productivity growth and cited research suggesting further gains over the next one to three years. The transmission mechanism for markets runs through the inflation and rate channel: faster productivity growth lifts potential output, which can allow the economy to expand without generating as much price pressure, potentially easing the Fed's required path for policy rates. Rate-sensitive segments such as long-duration Treasuries and growth equities are most exposed, since their valuations depend heavily on the discount rate applied to future earnings and cash flows. Broad equity indices with large technology weightings may also reprice if investors begin to treat AI-driven productivity as a durable earnings tailwind rather than a speculative story. The next key catalyst is the quarterly nonfarm productivity and unit labor cost release from the Bureau of Labor Statistics, where traders will look for confirmation that output per hour is accelerating and that wage pressures remain contained.

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