During a recent address at the University of California-Berkeley’s Fisher Center, Mary Daly, President of the Federal Reserve Bank of San Francisco, provided insights into the current economic climate and the impact of rising oil prices. She emphasized her attentiveness to how these price increases might influence the broader market, particularly regarding the costs of other goods and services.
Daly noted that prior to the uptick in oil prices, her assessment had suggested that one or two interest rate cuts might be necessary in 2026. However, she asserted that the situation has shifted, placing the Fed in a “wait and see” mode. According to her, if inflation begins to surge as a result of higher oil prices, the Fed could be compelled to raise interest rates. Conversely, if geopolitical conflicts resolve swiftly, there might be a scenario that allows for rate cuts.
The Fed’s approach is currently centered on compensating for a stagnant labor force growth rate with increased productivity. Notably, Daly mentioned that experiencing zero job growth might become the new norm due to demographic trends. As labor force growth trends downward, she indicated that the economic outlook hinges on how long the oil prices remain elevated and the persistence of international conflicts impacting markets.
Daly also observed that consumer sentiment is marked by anxiety concerning economic conditions, while businesses remain cautiously optimistic. She pointed out that there is significant potential to enhance labor force participation. A key factor in this dynamic is the current low levels of immigration, which, together with increased investment in technology, could play a crucial role in shaping future economic prospects.
