- No doubt of AI-fueled price pressures
- AI contributing directly only a modest amount to inflation
- AI having limited impact on labor market
- We have an inflation problem, but AI is not doing most of the driving
- There has been repricing in AI valuations, but it’s not the unwinding of interest or enthusiasm
- That suggests there’s not a risk to growth
- There is positive momentum for productivity growth
- A lot of work being done that we might see more productivity growth in next 1-3 years
- Stable labor market, positive growth and productivity growth, and high inflation
- Have to focus on bringing inflation down
- Just because we have to fight inflation problem now doesn’t mean we should ignore potential that productivity growth could be disinflationary
- Inflation shocks can compound, can’t be complacent
- Bias is that further tightening will be needed
- Inflation is bleeding into services
- Once services inflation rises it’s sticky
- Tighter financial conditions are most welcome
- But markets don’t do the work of the Fed; keeping prices stable is the job of the Fed
- Financial markets are in alignment with where Fed needs to be
Daly is the surprise hawk here and that matters because she’s historically been a reliable dove — when she says her “bias is that further tightening will be needed,” that’s a committee tell, not an outlier. The services language is the sharpest part: inflation “bleeding into services” and “once services inflation rises it’s sticky” is the exact framework the Fed used to justify the 2022-23 campaign, and reviving it signals she sees second-round effects, not just energy passthrough. The direct rebuttal of Bowman’s financial-conditions argument — markets don’t do the Fed’s work — closes off the main dovish off-ramp. Her AI framing cuts hawkish too: productivity optimism means hiking poses “not a risk to growth,” removing the other excuse to pause. Stack this with Logan and the center of gravity is clearly toward more than the 27.7 bps priced this year. Williams-Logan-Daly versus Bowman isn’t a split; it’s a consensus with one dissenter.
This article was written by Adam Button at investinglive.com.