US Market | Inflation, AI and Hiring Trends in Focus as Fed's Mary Daly Outlines Policy Priorities

Why It Matters

The comments signal that the Fed will likely maintain a cautious policy path, weighing AI’s uncertain impact against lingering inflation risks, which could influence interest‑rate expectations and market volatility.

Key Takeaways

• AI may boost productivity but inflation risks remain
• Fed watches narrow job growth across sectors
• Daly favors steady rates, cautious on cuts
• Early AI adoption limits macro evidence
• Parallels drawn to 1990s technology boom

Pulse Analysis

Mary Daly’s recent remarks place artificial intelligence at the forefront of the Federal Reserve’s policy calculus. While AI promises to enhance efficiency, the central bank remains skeptical about its near‑term macroeconomic impact, noting that productivity gains have yet to materialize in headline data. This cautious stance reflects the Fed’s broader mandate to anchor inflation expectations, suggesting that any premature rate cuts could jeopardize the modest progress achieved since the 2022 price‑spike cycle.

The labor market narrative adds another layer of complexity. Daly pointed out that recent job gains are concentrated in a handful of industries, leaving the broader workforce exposed to sector‑specific shocks. Companies are holding back on hiring until the AI‑driven transformation of operations becomes clearer, a trend that could temper wage growth and consumer spending. For investors, this signals potential volatility in sectors reliant on discretionary labor and highlights the importance of monitoring hiring sentiment as a leading indicator of economic momentum.

Historically, Daly referenced the 1990s technology boom, when the Fed avoided tightening despite rapid innovation. That era demonstrated how productivity breakthroughs can coexist with stable inflation when policy remains patient. Today’s AI wave may follow a similar trajectory, but the timeline appears longer and more uncertain. Market participants should watch for Fed communications that balance the optimism of technological progress with the reality of persistent price pressures, as this equilibrium will shape interest‑rate forecasts and equity valuations in the months ahead.

US Market | Inflation, AI and hiring trends in focus as Fed's Mary Daly outlines policy priorities

By Anupam Nagar · Last Updated: Feb 18 2026, 09:54 AM IST

The Fed will need to assess whether stronger growth reflects healthy supply‑side improvements or signals building inflationary pressures that may warrant policy action.

San Francisco Federal Reserve President Mary Daly said the U.S. central bank still needs to ensure inflation moves sustainably lower. She noted that while advances in artificial intelligence could help ease price pressures by boosting productivity, maintaining a modestly restrictive policy stance remains important, according to Reuters.

Speaking at an event at San Jose State University hosted by the Silicon Valley Leadership Group, Daly emphasized that policymakers must closely monitor the data to determine whether AI‑driven investment is translating into faster productivity growth without reigniting inflation.

She highlighted that current research shows limited macro‑economic evidence so far of a significant AI‑driven productivity surge, possibly because it is still early in the technology’s adoption cycle or because economy‑wide transformations typically take time to materialize. Daly also noted that understanding AI’s true impact will require deeper analysis beyond headline data, including engagement with businesses and sector‑level developments.

Daly drew parallels with the 1990s, when then‑Fed Chair Alan Greenspan looked beyond conventional productivity measures during the technology boom to avoid premature tightening, a period that ultimately saw strong growth alongside contained inflation.

The Fed will need to assess whether stronger growth reflects healthy supply‑side improvements or signals building inflationary pressures that may warrant policy action, Daly said in a report by Reuters. She underscored the importance of acknowledging both what policymakers know and what remains uncertain when setting durable monetary policy.

On the labor market, Daly pointed to vulnerabilities such as job growth being concentrated in a narrow set of industries, cautioning that this could pose risks if conditions change. She also noted that business leaders are expressing cautious optimism about demand despite consumers having drawn down savings, particularly among lower‑income households.

Businesses remain cautious about hiring decisions amid uncertainty over how long demand will remain strong and how artificial intelligence may reshape workforce needs. According to Daly, firms are waiting to better understand how technology will affect operations before expanding payrolls.

While she did not outline a specific near‑term policy path, Reuters noted that Daly has previously supported holding interest rates steady while acknowledging arguments for potential rate cuts to support workers facing limited job opportunities and persistent inflation pressures.

Daly’s comments suggest that the Federal Reserve continues to balance progress on inflation with evolving risks tied to technology, growth, and labor‑market dynamics.