US stocks dropped as investors parsed comments from San Francisco Federal Reserve President Mary Daly, who warned that too much tightening could be “unnecessarily painful” for the economy. Mounting concerns that China may tighten Covid curbs after a string of reported deaths also continued to weigh on investors. The S&P 500 and the Nasdaq 100 fell, but are off session lows. Crude futures pared losses after Saudi Arabia denied a report that it is discussing an oil-production increase for the OPEC+ meeting next month. The dollar gained as investors sought haven assets. Treasury yields dipped. Investors are closely watching what Fed speakers say about the outlook for interest rates. While several central bank officials in recent days have reiterated their resolve to keep raising rates, they differ on how far they’ll go. On Monday, Daly said that officials will need to be mindful of the lags with which monetary policy is transmitted through the economy as they raise interest rates further in order to drive down inflation. “This shouldn’t be regarded as a pivot or anything new,” Michael Contopoulos, director of fixed income at Richard Bernstein Advisors, said about Daly’s comments. “A real pivot is when the Fed starts to cut rates and/or pause quantitative tightening. That is nowhere in sight.” “For the Fed right now, if we do get some slowing in inflation — which it seems like we might — but you’re not seeing it in the slowing of service inflation, that’s related to a tight labor market,” Veronica Clark, economist at Citigroup, said Monday on Bloomberg Television. “You do need to see that loosening in the labor market data.” Meanwhile, China saw its first Covid-related death in almost six months on Saturday and another two were reported on Sunday. Worsening outbreaks across the nation are stoking concerns that authorities may again resort to harsh restrictions. Shutdowns could have a negative impact on supply chain dynamics and possibly exacerbate inflation issues across economies. “China is such a large portion of global growth. It matters. So that’s why what news was this morning I think was so important,” Lindsay Rosner, multi-sector portfolio manager at PGIM Fixed Income, said by phone. “There is not an expectation in the market of a complete removal of the zero Covid policy. But I think if Covid has taught any of us anything is that it can’t be predetermined.”