Wall Street spends hours parsing comma changes in the Fed's statement. Mary Daly just said that's the wrong thing to read.
The San Francisco Fed President spoke to Bloomberg on May 7. She said the wording in the statement matters less than what the rate-setting group does.
For investors who trade off a single hawkish word, that is a clear nudge. Watch the dot plot and the rate path. Skip the press release.
Daly said current Fed policy is "slightly restrictive." That is Fed talk for rates that are pressing down on growth and prices.
Her view is that this setting will keep pulling inflation lower. That holds as long as the Iran war ends and energy prices calm down.
She also said she is set on getting inflation back to the Fed's 2% goal. That is the same target the Fed has used since 2012.
The message is simple. She has no plans to soften it now.
The phrase is doing a lot of work. It tells investors three things at once:
That mix tends to be friendly for stocks if growth holds. It says the Fed is not in a rush to cut or hike again.
The bigger tell came on inflation hopes. Daly said there is no sign yet that the recent jump in energy prices is pushing medium- or long-term inflation hopes higher.
That matters. The Fed worries less about a one-off oil spike. It worries more if people start to expect high prices to stick.
As long as long-term hopes stay anchored, the Fed has more room to hold rates steady. That means no fast hike, even with energy in the news.
For investors, that is a quietly bullish read on rate-sensitive sectors. Housing, small caps, and growth stocks all do better when the Fed holds.
Why? A central bank willing to live with a short oil spike is a central bank not likely to rush new hikes onto a slowing economy.
Daly's view fits where the FOMC has been all year. The group held rates flat at its last meeting and said it would lean on data, not headlines.
That is the pattern Daly is asking investors to focus on. Words in the press release can shift on the margin. The actual path is what moves the portfolio.
Watch the next round of inflation hope surveys. The University of Michigan and New York Fed reports are the ones to track. Also watch any moves in the Iran war.
Daly tied her view to both readings. If hopes stay anchored and the war eases, her stance gets easier to hold. If either breaks the wrong way, the Fed's calm posture gets tested fast.