Federal Reserve Bank of San Francisco President Mary Daly stated that inflation should begin to decelerate while emphasizing significant economic uncertainties remain. She delivered these remarks during an event hosted by the Bank of Spain in Santander on July 2, 2026. The comments arrive during a volatile trading session, with major technology stocks like Cisco Systems Inc. declining sharply. Market participants are scrutinizing every Fed utterance for clues on the future path of interest rate policy.
Context — [why this matters now]
The Federal Reserve's communication strategy is paramount as markets attempt to forecast the central bank's next policy move. The last significant dovish pivot occurred in late 2023 when the Fed paused its hiking cycle after raising the federal funds rate to a 22-year high of 5.25%-5.50%. Current market pricing, as reflected in the CME FedWatch Tool, implies expectations for at least one rate cut before year-end.
Daly’s remarks reflect the central bank's data-dependent approach. Recent Consumer Price Index (CPI) readings have shown modest improvement, but they remain above the Fed's 2% target. The Personal Consumption Expenditures (PCE) index, the Fed's preferred inflation gauge, registered 2.6% year-over-year in the latest report.
The primary catalyst for this heightened focus on Fed speakers is the impending turn in the economic cycle. With growth showing signs of moderation and the labor market cooling from its post-pandemic fever, investors are attempting to position for a potential soft landing or a mild recession.
Data — [what the numbers show]
Market reaction to monetary policy uncertainty was evident in real-time price action. Cisco Systems Inc. (CSCO) traded at $113.49, registering a daily decline of 3.38%. The stock's intraday range was wide, spanning from a low of $113.16 to a high of $117.14, indicating significant volatility and selling pressure.
This tech weakness contrasted with a relatively stable broader market. The S&P 500 index held near flat on the session, suggesting the reaction was largely contained to specific sectors. The Nasdaq 100 Index, a tech-heavy benchmark, underperformed the S&P 500 by approximately 40 basis points during the European afternoon session.
The U.S. Dollar Index (DXY), which tracks the greenback against a basket of major currencies, was largely unchanged. Treasury yields were also stable, with the 10-year note holding near 4.2%. This indicates currency and bond traders assigned a lower immediate probability to Daly's comments altering the Fed's stated policy path compared to equity traders.
Analysis — [what it means for markets / sectors / tickers]
Daly's commentary creates a bifurcated market effect. Rate-sensitive growth stocks, particularly in the technology sector, face headwinds from any narrative that delays interest rate cuts. Cisco's 3.38% decline exemplifies this dynamic, as higher rates for longer compress the present value of future earnings. Other mega-cap tech names with high valuations could see similar pressure.
Conversely, the financial sector, specifically bank stocks, may find support. A higher-for-longer rate environment typically benefits net interest margins for lenders. Regional bank ETFs like the SPDR S&P Regional Banking ETF (KRE) were seen outperforming the broader market following the remarks.
A key counter-argument is that the market may be overreacting to a single official's remarks. Daly is not a voting member on the Federal Open Market Committee (FOMC) in 2026, which limits the immediate policy impact of her views. The market's violent reaction to a non-voter highlights its current hypersensitivity.
Positioning data indicates institutional investors are using any hawkish-leaning Fed commentary to take profits in long-duration tech positions that have outperformed year-to-date. Flow has been rotating into value and defensive sectors like utilities and consumer staples.
Outlook — [what to watch next]
The next major catalyst for rate expectations is the June jobs report, scheduled for release on July 8. Economists are forecasting nonfarm payrolls to have increased by 190,000, with the unemployment rate holding steady at 4.0%. A significant deviation from these estimates will immediately reshape terminal rate forecasts.
The June Consumer Price Index report, due July 12, is the next critical inflation data point. Market participants will watch the core CPI reading, which excludes food and energy, for signs of sustained disinflation. A core reading at or below 0.2% month-over-month would likely reinforce dovish expectations.
Technical levels are crucial for traders. For CSCO, the $113.16 low represents immediate intraday support; a break below could trigger further selling toward its 50-day moving average near $111.50. On the upside, resistance sits at the session high of $117.14. For the Nasdaq 100, the 20,000 level is a key psychological and technical support zone.
Frequently Asked Questions
What does the Fed's cautious stance mean for mortgage rates?
Elevated and uncertain Fed policy typically translates to higher mortgage rates, as they are closely tied to 10-year Treasury yields. If the Fed signals a prolonged pause or fewer cuts, the average 30-year fixed mortgage rate is likely to remain above 6.5%, continuing pressure on the housing affordability and purchase application volume. This dynamic directly impacts homebuilder stocks and real estate investment trusts (REITs).
How influential is Mary Daly within the Federal Reserve?
While Mary Daly is a respected voice and permanent voter on the FOMC as a regional bank president, her influence is part of a collective. The Chair's view, currently Jerome Powell's, holds the most weight. However, Daly's comments are closely analyzed because she is considered a centrist, making her a useful barometer for the consensus view within the central bank's leadership.
What is the difference between CPI and PCE, and why does the Fed prefer PCE?
The Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) index both measure inflation but use different methodologies. The Fed prefers the PCE index because it has a broader scope of expenditures and its formula better accounts for consumers substituting goods when prices change. Historically, PCE inflation runs about 0.3-0.4 percentage points lower than CPI inflation.
Bottom Line
Market volatility reflects deep uncertainty over the Fed's policy path amid mixed inflation signals.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.
