Fed’s Daly: Signs Tariff Impact on Inflation Is Starting to Fade

Federal Reserve Bank of San Francisco President Mary Daly said on Tuesday that there are some signs the impact of tariffs on inflation is starting to fade, offering a cautious note of optimism about the path of price pressures. Speaking at an event in Los Angeles, Daly acknowledged that while inflation remains above the Fed’s 2% target, recent data suggests the initial price shocks from trade policies may be dissipating.

Context and Background

Daly’s remarks come amid ongoing debate about the economic effects of tariffs imposed by the current administration. Since 2025, tariffs on a range of imported goods have contributed to higher consumer prices, complicating the Federal Reserve’s fight against inflation. The central bank has maintained a restrictive monetary policy stance, keeping interest rates elevated to cool demand and bring inflation down.

However, Daly’s observation aligns with a recent moderation in some price categories, such as durable goods and certain raw materials, which had initially spiked after tariff announcements. Economists have noted that businesses may have front-loaded price increases, and the fading impact could reflect a normalization as supply chains adjust.

Implications for Monetary Policy

If tariff-driven inflation is indeed waning, it could reduce the need for further rate hikes and potentially open the door for rate cuts later this year. Investors are closely watching Fed communications for clues about the policy path. According to CME Group’s FedWatch tool, as of early March, market participants are pricing in a roughly 60% chance of a rate cut by June, though expectations remain volatile.

Daly emphasized that the Fed remains data-dependent and will not hesitate to act if inflation proves stubborn. She noted that the labor market remains resilient, with unemployment near historic lows, giving the Fed room to be patient.

Why It Matters

For consumers and businesses, a fading tariff impact could mean slower price increases ahead, easing cost-of-living pressures. For investors, it could signal a shift in Fed policy that affects bond yields, stock valuations, and borrowing costs. The Federal Reserve’s ability to balance inflation control with economic growth is crucial for maintaining confidence in the U.S. economy.

Conclusion

Mary Daly’s comments provide a glimmer of hope that the worst of tariff-induced inflation may be behind us. However, the Fed remains cautious, and upcoming inflation reports will be critical in determining the next policy move. As always, the central bank will rely on data, not forecasts, to guide its decisions.

FAQs

Q1: What did Mary Daly say about tariffs and inflation?
Mary Daly, President of the Federal Reserve Bank of San Francisco, said that there are some signs the impact of tariffs on inflation is starting to fade, suggesting that price pressures from trade policies may be easing.

Q2: How could this affect interest rates?
If tariff-driven inflation continues to fade, the Fed may feel less pressure to keep interest rates high, potentially leading to rate cuts later in the year. However, any decision will depend on incoming economic data.

Q3: What should consumers and investors watch for next?
Consumers and investors should monitor upcoming inflation reports and Fed communications for signals about the direction of monetary policy. A continued moderation in prices could signal a shift toward more accommodative policy.