$BTC Federal Reserve's Daly Signals Rate Cuts: Timing Approaches and May Exceed Twice
Mary Daly, a 2027 FOMC voting member and President of the San Francisco Fed, said on Monday that given the increasing evidence that the U.S. labor market is softening and the absence of persistent inflation driven by tariffs, the timing for rate cuts is approaching.
'Last week, when the Federal Reserve decided to maintain short-term borrowing costs in the range of 4.25%-4.50% instead of cutting rates, I was willing to wait for one more meeting, but this waiting cannot go on indefinitely.' Daly commented on the Fed's decision last week. This decision contradicted the rate cut proposals of some of her colleagues and the public demands from Trump.
Although this does not mean a rate cut is certain in September, she stated, 'I would tend to believe that each subsequent meeting will need to seriously consider policy adjustments.'
Regarding the Federal Reserve policymakers' expectation of two rate cuts of 25 basis points each within the year in June, Daly believes this 'is still an appropriate adjustment range, whether implemented in September and December or in some other combination is not important; there are various permutations possible to achieve these two rate cuts.'
Daly pointed out that several labor market and inflation data will be released before the September policy meeting, and she remains open to this. 'If inflation rises and spreads, or if the job market suddenly rebounds, we could certainly reduce the number of rate cuts (to less than two),' she said.
But she emphasized, 'I think the more likely scenario is that more than two rate cuts will be needed. Based on my judgment, if the labor market shows signs of weakness and inflation remains unaffected, we should be prepared for further action.'
The Labor Department reported last Friday that U.S. employers added only 73,000 jobs last month, and data from the previous two months was significantly revised down to a total of 33,000. Daly believes these numbers do not indicate that the job market is in jeopardy. She pointed out that during periods of economic volatility, raw employment data is often less valuable than ratios like the unemployment rate, which only slightly increased by 0.1 percentage points to 4.2% in July.
But she also stated that, looking at multiple labor market indicators, 'evidence is coming in' indicating that the current job market is significantly weaker than last year. 'If it continues to weaken, it would be an undesirable outcome. I am satisfied with the decision made in July, but if the same decision is made repeatedly, my unease will grow.'
On the other hand, Daly stated that there is no evidence that price increases caused by tariffs are broadly driving up inflation. She warned that if the Federal Reserve waits too long to confirm this (possibly taking six months to a year), acting then 'would definitely be too late.'
'The Federal Reserve is entering a weighing phase: both determining what level of policy is needed to continue suppressing inflation and ensuring sustainable employment can be achieved,' Daly explained. 'That’s why I think there was no need for immediate adjustment in July, but it is becoming increasingly clear that the current policy is mismatched.'
