• Federal Reserve Bank of San Francisco President Mary Daly warns the economy may follow a 1970s-style inflation path, not just a 1990s productivity boom.
  • Keeping interest rates too high for too long could be damaging, but premature loosening risks persistent inflation.
  • Daly expects future rate cuts as the economy moves toward sustained price stability, but the policy path hinges on correctly identifying the dominant economic dynamic.

In an essay published November 10, 2025, San Francisco Fed President Mary Daly drew attention to the critical fork in the road facing U.S. monetary policy: whether the current economic expansion resembles the productivity-driven 1990s boom or the inflation-prone 1970s. The distinction, she argued, will dictate the appropriate pace of interest rate adjustments.

Daly noted that while AI-driven productivity gains evoke comparisons to the tech-led surge of the 1990s—potentially enabling sustained growth without igniting inflation—there are also troubling parallels to the 1970s. In that era, households and businesses, scarred by inflation, reacted strongly to price changes, embedding higher inflation expectations into the economy. “Just because we have similarities to the 90s doesn’t mean it will be the 90s,” Daly said, cautioning against complacency.

The Fed has paused its rate-cutting cycle since early 2026, following a string of cuts that began in September 2024. Interest rates remain at multiyear highs. Daly emphasized that the central bank must avoid two pitfalls: keeping rates “too high for too long,” which could unnecessarily harm growth, or loosening policy prematurely if 1970s-style dynamics prevail, reigniting inflation. “The critical policy challenge is correctly identifying which historical parallel applies,” she wrote.

Current inflation data offers mixed signals. Goods prices have been largely contained, partly due to tariff-related factors, but other components have not shown significant run-ups. Daly expects that as the economy moves toward sustained price stability and healthy labor conditions, further rate cuts will likely be appropriate. She envisions the Fed helping to create a sustained economic expansion beyond just a “soft landing.”

“We have a constant balance with the banks, which really we consider our partners and not only our binary competitors,” said Cecile Mayer-Levi, head of private debt at Tikehau Capital, in a separate context. Daly’s remarks underscore the delicate balancing act ahead for policymakers.

Attempts to reach Fed officials for further comment were unsuccessful.

Correction: An earlier version of this article misstated the timing of Daly’s essay. It was published November 10, 2025.