San Francisco Federal Reserve Bank president Mary Daly indicated that the central bank is approaching a point where interest rate cuts may be necessary. Daly cited increasing signs of a softening US job market, coupled with the absence of persistent inflation driven by tariffs, as key factors influencing this shift in perspective. Despite the Federal Reserve’s decision last week to maintain short-term borrowing costs in the 4.25 per cent to 4.50 per cent range, Daly suggested her willingness to wait is not indefinite.
While emphasising that a September rate cut is not guaranteed, Daly stated that every upcoming meeting would be considered ‘live’ with respect to policy adjustments. She noted that the two quarter-point interest-rate cuts previously anticipated by Fed policymakers in June remain an appropriate amount of recalibration. The timing of these cuts, whether in September or December, is of secondary importance to their overall implementation.
Daly stressed the importance of remaining flexible and data-dependent, noting that several labour market and inflation reports are due before the Fed’s September policy meeting. The central bank is prepared to adjust its course based on incoming economic data. While fewer than two rate cuts could be implemented if inflation rises or the labour market rebounds, Daly suggested that more than two cuts may be necessary if the labour market weakens further without inflationary consequences.
In summary, the Federal Reserve is closely monitoring economic indicators and stands ready to adjust its monetary policy as needed to maintain economic stability and promote sustainable growth.
