Mary Daly, President of the Federal Reserve Bank of San Francisco, spoke on Friday at the University of California, Berkeley\u2019s Fisher Centre. She said she is watching whether higher oil prices feed into the prices of other goods and services.<\/p>\n
Before the oil price shock, she expected that one or two rate cuts in 2026 would be needed. She said the Fed could leave rates where they are, and is in a wait-and-see mode.<\/p>\n
She said rates might need to rise if inflation accelerates. She also said rates could be cut if the conflict ends quickly, and that the outlook depends on how long oil prices stay higher and how persistent the conflict is.<\/p>\n
Daly said low labour force growth is being offset by higher productivity growth. She said zero job growth could become the new steady state, and that the US is moving towards zero labour force growth because of demographics.<\/p>\n
She said consumers are nervous about the economy but are still spending. She said businesses are cautiously optimistic, and that there is room to raise labour force participation.<\/p>\n
She also said a lack of immigration matters, along with investment in technology.<\/p>\n
We’re now in a “wait and see” mode, which means rate cut expectations for 2026 are fading. This shift is injecting uncertainty into the market, reflected in the VIX index, which has climbed above 18 this month. Traders should anticipate higher volatility across asset classes in the coming weeks.<\/p>\n
The market was pricing in one or two rate cuts for 2026, but that view is now being challenged. The probability of a rate cut by September has fallen to below 30% according to recent Fed funds futures data. This suggests traders should unwind positions that relied on imminent easing and consider strategies that benefit from rates staying elevated.<\/p>\n
The outlook hinges on the duration of the current conflict and its impact on oil, with WTI crude recently pushing past $95 a barrel. We saw back in 2022 how a sustained energy shock can force the Fed\u2019s hand, so oil market volatility is the key variable to watch. Any signs that these higher energy costs are seeping into core inflation will be a major trigger for the market.<\/p>\n
The idea that zero job growth could be the new normal is a critical shift in thinking for us. Even though the last jobs report showed a modest gain of only 85,000 jobs, the Fed may not view this as a sign of weakness requiring a rate cut. This is because higher productivity is currently compensating for slower labor force growth.<\/p>\n
There is a clear disconnect between consumer sentiment, which has been trending lower, and actual retail spending, which saw a 0.5% increase last month. We are watching this closely, as any sign of consumer spending finally cracking under the pressure of high oil prices could quickly alter the economic outlook. This makes upcoming retail sales and confidence reports particularly important market-moving events.<\/p>\n","protected":false},"excerpt":{"rendered":"
San Francisco Fed\u2019s Mary Daly says oil prices may affect inflation; Fed waits, with rate changes possible.<\/p>\n","protected":false},"author":38,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[46],"tags":[],"class_list":["post-45281","post","type-post","status-publish","format-standard","hentry","category-live-updates"],"acf":[],"aioseo_notices":[],"featured_image_src":null,"featured_image_src_square":null,"author_info":{"display_name":"josephine","author_link":"https:\/\/www.vtmarketsglobal.com\/en\/author\/josephine\/"},"_links":{"self":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/45281","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/users\/38"}],"replies":[{"embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/comments?post=45281"}],"version-history":[{"count":0,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/posts\/45281\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/media?parent=45281"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/categories?post=45281"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.vtmarketsglobal.com\/en\/wp-json\/wp\/v2\/tags?post=45281"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}