URGENT UPDATE: Mary Daly, President of the San Francisco Federal Reserve Bank, has just announced that the time is approaching for potential interest rate cuts, emphasizing that she may advocate for more than the previously anticipated two cuts. This statement comes amid signs of a softening US job market and diminishing concerns over inflation driven by tariffs.
In an address on July 31, 2023, Daly stated, “I was willing to wait another cycle, but I can’t wait forever,” reflecting the urgency of the Fed’s next steps after the recent decision to maintain short-term borrowing costs within the 4.25%-4.50% range. This decision contrasts with calls from some colleagues and former President Trump for immediate rate reductions.
Daly stressed that while a rate cut in September is not guaranteed, she views every future meeting as a critical opportunity to reassess policy. “Every meeting going forward is a live meeting to think about these policy adjustments,” she said, highlighting the evolving nature of economic indicators.
The Labor Department’s latest report revealed that only 73,000 jobs were added in the last month, with significant revisions indicating just 33,000 jobs were created in the previous two months. This data points to a troubling trend, which Daly acknowledges, stating that these figures indicate a job market that is softening compared to last year.
Despite the diminishing job growth, Daly reassured that the overall employment landscape remains resilient, with the unemployment rate only slightly rising to 4.2% in July. However, she expressed concern over the implications of further softening, saying, “I would see further softening as an unwelcome result.”
Looking ahead, Daly indicated that the Fed may need to reevaluate its approach if inflation remains stable and the labor market continues to weaken. “I think the more likely thing is that we might have to do more than two [rate cuts],” she warned, underscoring the delicate balance the Fed must maintain between controlling inflation and supporting employment.
Daly further emphasized that there is currently no evidence indicating that tariff-related price increases are spreading into wider inflation metrics. “If the Fed waits too long to ensure this won’t happen, we will be too late to move,” she cautioned, emphasizing the importance of timely decision-making.
The Fed is navigating a challenging landscape where it must balance its efforts to curb inflation while ensuring sustainable employment. As Daly puts it, “We are approaching a tradeoff space,” indicating the complexities involved in future policy decisions.
As the September Fed meeting approaches, all eyes will be on the upcoming labor market and inflation reports that could significantly influence the Fed’s next moves. The economic landscape is evolving rapidly, and the implications of these decisions will resonate throughout the economy.
Stay tuned for more updates as this story develops. The decisions made by the Fed will have a profound impact on the financial landscape and the lives of many Americans.