Fed's Daly says AI is not for now driving inflation up or down

• Daly views AI as a potential deflationary force over a 5-10 year window, but considers it 'not a pressing issue' for monetary policy which operates on a 12-month horizon
• Current inflation increases are attributed to higher tariffs and more recently elevated energy and food prices since the Iran war began, not AI-related factors
• The Fed's short-term policy focus remains on immediate inflation drivers rather than longer-term technological impacts

Fed's Daly: AI Not Currently Impacting Inflation

San Francisco Federal Reserve President Mary Daly stated Thursday that artificial intelligence is neither driving inflation up nor down at present, though it could become a deflationary force over the next 5-10 years. Speaking at a Bloomberg Tech event in San Francisco on June 4, Daly emphasized that AI's economic effects are "not a pressing issue" for monetary policy, which operates on a 12-month time horizon.

Key Points:

Daly clarified that AI is not responsible for current inflationary pressures. Instead, she attributed rising inflation to higher tariffs and recent increases in energy and food prices stemming from the Iran war. This assessment provides important context for investors trying to understand near-term inflation drivers and Fed policy direction.

Market Implications:

The remarks suggest the Federal Reserve is not factoring AI-related productivity gains or disruptions into its immediate monetary policy decisions. This indicates the Fed remains focused on traditional inflation drivers—tariffs, energy, and food costs—when setting interest rates over the coming year.

While Daly acknowledged AI's potential long-term deflationary impact through productivity improvements and cost reductions, this remains a structural consideration for the 5-10 year outlook rather than an immediate policy concern. For traders, this means Fed rate decisions will continue to hinge on conventional economic indicators and geopolitical factors affecting commodity prices.

The comments come as investors increasingly debate whether AI investments will prove inflationary (through massive capital expenditure and energy demand) or deflationary (through efficiency gains), with Daly clearly signaling the Fed views this as a longer-term question rather than a current policy variable.