Fed's Mary Daly: AI Could Tame Inflation in 5–10 Years, But It's Irrelevant to Today's Policy

At a Bloomberg Tech event in San Francisco on June 4, 2026, San Francisco Federal Reserve President Mary Daly offered a revealing split-screen view of AI's economic role. For the long term, she sees it as a powerful deflationary tool. For the immediate future, it's a non-factor overshadowed by more concrete inflationary pressures.

The 5-to-10-Year Vision: AI as a Deflationary Force

Daly's most prominent forecast was that artificial intelligence, over a five- to 10-year window, could act as a deflationary force on the economy . This isn't about AI making things cheaper overnight. The theory, which Daly supports, is that as businesses integrate AI, they will unlock significant productivity gains. Higher productivity—getting more output from the same or fewer inputs—is a classic pathway to lower costs and, eventually, lower prices for goods and services.

However, she added a crucial modifier to this forecast: "'not a pressing issue' for monetary policy." The Federal Reserve sets interest rates to manage inflation over a roughly 12-month horizon . A technological shift that may take half a decade or more to play out doesn't fit neatly into that timeline, making it a background condition rather than an active factor in today's rate decisions.

The 12-Month Reality: Tariffs, War, and an Oil Shock

Daly was equally direct about what is driving the current inflationary environment, and it isn't AI. She stated that the latest uptick in inflation is driven by higher tariffs and, more recently, by higher energy and food prices since the start of the Iran war . The oil shock resulting from the conflict has been a particular concern for Daly. In an earlier April 2026 interview, she noted that while the economy was fundamentally solid, the oil shock "extends the timeline on getting inflation back to the Fed's 2% goal" and could leave the central bank in a holding pattern on interest rates .

This framing puts AI in a curious spot. It's a source of long-term optimism but provides zero relief to a Federal Reserve grappling with immediate, geopolitically driven price spikes.

The Missing Link: Where Are the Productivity Gains?

One key reason for Daly's "wait and see" stance is a simple lack of visible evidence. She noted that the significant productivity gains one would expect from a revolutionary technology like AI have not yet materialized in the economic data . This pushes the timeline for any potential inflation-lowering effect further into the future. The data suggests that 2027 is shaping up to be what one report called a 'litmus test' year for the AI industry to demonstrate its real-world economic impact beyond investment and hype .

What This Means for Monetary Policy

Daly's June 4th comments reinforce the Fed's current cautious posture. She indicated the central bank is prepared to adjust rates in either direction but warned that providing more explicit forward guidance at this volatile moment could be misleading . The immediate battle is against tariff-driven and energy-cost inflation, while the promise of AI remains a story for the next chapter.