Federal Reserve’s Interest Rate Outlook

Mary Daly, the President of the San Francisco Federal Reserve Bank, mentioned on Monday that interest rate cuts may soon be on the table. This comes as the job market shows signs of softening, and there’s growing evidence suggesting that inflation driven by tariffs isn’t proving to be persistent.

“I really thought about holding off for another cycle, but, you know, I can’t wait forever,” Daly shared recently regarding the federal decisions. While some of her colleagues favored keeping short-term borrowing rates in the 4.25%-4.50% range, President Trump had urged for cuts.

It’s important to note, though, that this doesn’t mean rate cuts in September are guaranteed. Daly remarked, “Future meetings are definitely opportunities to consider these policy changes.”

The two rate cuts of a quarter-point each this June were regarded as sensible adjustments. According to her, these decisions often have varied repercussions that could affect future meetings. For now, there seems to be a multitude of possibilities regarding those previous cuts.

Daly emphasized the importance of upcoming data—especially labor market and inflation reports—before the Fed’s policy setting meeting in September, expressing her openness to any conclusions they may lead to.

“If inflation starts rising again, or if the job market improves, we might not need to implement two cuts,” she explained. Yet, she indicated that if the labor market continues to weaken, they might have to consider more proactive measures, although there’s no significant inflation evidence at this point.

Recent Labor Department statistics revealed that employers added a mere 73,000 jobs last month, and a noteworthy revision showed only 33,000 jobs were added in the preceding two months. However, Daly pointed out that this doesn’t necessarily indicate a weak job market. In times of economic changes, current employment figures can be less informative than metrics like the unemployment rate, which saw only a slight increase in July.

Despite the softening labor market, she noted that there’s still “after-proof evidence” highlighting its decline compared to last year based on various metrics.

“Anything softer would be concerning,” she cautioned. While she stands by the decision made in July, she’s hesitant about making the same choices repeatedly.

Daly also mentioned that there is no significant evidence showing that tariff-induced price increases are spreading, emphasizing that monitoring this could be a lengthy process—perhaps six months to a year—if the Fed chooses to wait for more concrete evidence.

The Fed has indicated that they’re nearing a crucial decision point where they need to balance policies aimed at reducing inflation and ensuring sustainable employment. “I didn’t see July as the necessary shift, but I feel increasingly that our policies are not consistent.”