San Francisco Federal Reserve Bank President Mary Daly on Monday said that given mounting evidence that the US job market is softening and no signs of persistent tariff-driven inflation, the time is nearing for interest rate cuts.
“I was willing to wait another cycle, but I can’t wait forever,” Daly said of the Fed’s decision last week to leave short-term borrowing costs in their 4.25%-4.50% range rather than cut them, as a couple of her colleagues wanted and as President Trump has demanded.
While that doesn’t mean a September rate cut is a lock, she said, “I would lean to thinking that every meeting going forward is a live meeting to think about these policy adjustments.”
The two quarter-point interest-rate cuts that Fed policymakers back in June penciled in for this year still “look to be an appropriate amount of recalibration, and less important is, does it happen in September and December than does it happen at all…there’s all kinds of permutations to get those two cuts.”
Daly said there is still plenty of data including a couple of labor market and inflation reports due out before the Fed’s policy-setting meeting, in September, and she’s keeping an open mind.
“We of course could do fewer than two (rate cuts) if inflation picks up and spills over or if the labor market springs back,” Daly said. But “I think the more likely thing is that we might have to do more than two…we also should be prepared in my judgment to do more if the labor market looks to be entering that period of weakness and we still haven’t seen spillovers to inflation.”
A Labor Department report Friday showed US employers added just 73,000 jobs last month, and massive revisions to previously reported data showed only 33,000 jobs were added in the two prior months.
Those figures, to Daly’s mind, don’t mean the job market is precariously weak – in times of economic flux, she said, raw employment numbers are often less informative than ratios like the unemployment rate, which ticked up just a tenth of a percentage point in July to 4.2%.
Still, she said, looking at a broad dashboard of labor-market measures, there is “evidence after piece of evidence” that the labor market is softening quite a bit compared to last year.
“I would see further softening as an unwelcome result,” she said. “I’m comfortable with the decision we made in July, but I am increasingly less comfortable with making that decision again and again.”
At the same time, she said, there’s no evidence that tariff-driven price increases are seeping more broadly into inflation, and if the Fed waits long enough to be certain it won’t — a process that could take six months or a year, she said – the Fed will “for sure” be too late to move.
The Fed is approaching a “tradeoff space where you are trying to make a judgment about where does policy need to be to continue to put downward pressure on inflation, and where does it need to be to continue to make sure that sustainable employment can be achieved,” she said. “That’s why I didn’t think that July was a necessary change, but I do think, increasingly, policy is not aligned.”
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