SF Fed President Daly Links Interest Rate Path to Middle East Stability

San Francisco Federal Reserve President Mary Daly stated on Friday that the trajectory of U.S. monetary policy remains clouded by ongoing geopolitical instability. While the domestic economy continues to exhibit strength, the external environment is complicating the central bank's ability to forecast interest rate movements. Daly's comments underscore a growing concern within the Federal Reserve that external shocks—specifically the conflict in the Middle East—could disrupt the current economic glide path. This suggests that the Fed may be less reliant on domestic data alone and more attentive to global risk factors when determining the timing and scale of rate adjustments. According to Daly, the length and intensity of the Middle East conflict will be a decisive factor in the Fed's decision-making process. The uncertainty stemming from these tensions makes it difficult for policymakers to provide a definitive outlook on whether rates will hold, rise, or fall in the coming months. For market participants, this signal suggests a period of heightened sensitivity to geopolitical headlines. If the conflict prolongs or escalates, the resulting pressure on energy prices and global supply chains could force the Fed to maintain a more restrictive stance to combat potential inflationary spikes, regardless of cooling domestic indicators.