San Francisco Federal Reserve President Mary Daly has warned that the central bank is prepared to take more aggressive action if inflation shows signs of accelerating, adding to the pressure on markets to price in potential rate hikes this year.
Daly, speaking ahead of the Federal Reserve's September policy meeting, defended the decision to hold interest rates steady in July but emphasized that the door remains open for tighter policy.
She indicated that a resurgence in inflationary pressures could force the Fed to consider more forceful measures, a stance that aligns with a broader hawkish shift among policymakers.
The comments come as market participants rapidly recalibrate their expectations for US monetary policy.
Just days ago, traders had priced in a high probability of rate cuts or stability, but the likelihood of multiple Federal Reserve rate hikes this year has risen sharply.
This repricing reflects growing concerns that persistent inflation, potentially exacerbated by geopolitical tensions in the Iran region, could derail the easing cycle.