Mary Daly, President of the Federal Reserve Bank of San Francisco, indicated that signals from the U.S. Treasury market suggest monetary policy is currently positioned appropriately.

“There’s a lot of discussion about our credibility. I don’t think our credibility is at risk,” Daly said in an interview on Thursday. “I also frequently hear questions about whether we should take a precautionary rate cut—or, should I say, a hike? I haven’t seen much evidence that this is an urgent issue needing immediate action.”

Investors have aggressively sold off bonds since the Fed’s last meeting in July, when it held interest rates steady for a fifth consecutive time without signaling an imminent increase. Long-dated bonds have seen the most pronounced selling, with 30-year Treasury yields surging to their highest levels since 2007. The selloff reflects concerns over the nation’s rising debt burden and inflation, which has remained above the Fed’s 2% target for over five consecutive years.

The Treasury Department announced plans on Wednesday to expand the size of its buyback program for long-dated U.S. debt. However, the impact of that announcement on lowering long-term yields appeared fleeting, with much of the bond-related gains already erased by Thursday. Daly declined to comment on the Treasury’s actions.

Daly emphasized the importance of monitoring policy signals from bond prices, adding that prices may also be reflecting rising market demand for artificial intelligence (AI) products and related infrastructure.

Daly is not a voting member of the Federal Open Market Committee this year. She has previously voiced support for holding rates steady but also noted that the risk of inflation evolving into a broader, more persistent problem is on the rise.

“I fully supported the decision to hold rates in July, and I will continue to watch information between now and the next meeting to see if there are signs that this concerning scenario is taking shape. So far, I haven’t seen it,” Daly said. “The recent inflation and labor market data haven’t really changed my view either.”

She reiterated her expectation that tariff-related price impacts, oil price spikes, and AI-driven price shocks would prove temporary, allowing inflation to cool again under a slightly restrictive monetary policy. As a labor economist, Daly noted she sees no indications that the labor market is contributing to inflation.

Traders currently price about a 30% probability of a Fed rate hike in September, down from over 70% at the end of July.