Mary Daly states that potential rate cuts are due to the weakening labor market and inflation stability. According to a Reuters report, she stated that the time is approaching for the Federal Reserve to begin lowering interest rates.
Daly explained that continued political inaction could deviate from the economic situation. The president of the Federal Reserve Bank of San Francisco expressed support for the July decision to keep rates steady but voiced increasing discomfort at the prospect of delaying cuts for much longer.
She warned that waiting too long could harm the labor market and miss the optimal moment for policy adjustments. Daly also stated that there are signs of a slowdown in the labor market.
U.S. employers created only 73,000 jobs in July, while the unemployment rate slightly increased to 4.2%. However, Daly stated that broader labor indicators show a steady weakening.
She emphasized that two Fed rate cuts this year, as planned in June, still make sense. However, she indicated that there could be more rate cuts if employment weakness persists. She dismissed concerns that new tariffs would trigger inflation.
She claims that there is no data to prove that trade-related price increases are affecting the economy. Daly argued that waiting six months to confirm inflation trends would be too late to act.
Although she did not commit to a Fed rate cut in September, Daly stated that from now on, every meeting must address making such decisions. She emphasized the importance of recent data from labor and inflation reports.
The Federal Reserve is currently in a "balanced space" regarding policy, Daly explained. The Fed must weigh the balance between containing inflation and supporting sustainable employment. She believes that policy should be adjusted soon to avoid losing this balance.
Daly's comments come amid ongoing pressure from President Donald Trump to cut interest rates immediately, including plans to announce a Federal Reserve governor who supports rate reductions. However, she clarified that her decisions are based on economic data, not political pressures.
Currently, there is a 94.4% probability that the Federal Reserve will cut interest rates at its September meeting. It is expected that the current range of interest rates will move from 4.25% to 4.50% to 4% to 4.25%. Only 5.6% of market participants still do not foresee changes in rates.
