Mary Daly Warns: The Fed May Need Up to Three Rate Cuts as Labor Market Weakens

San Francisco Federal Reserve President Mary Daly has issued a strong signal: the U.S. central bank may need up to three interest rate cuts in 2025. Why? A slowing labor market, stable inflation, and concerns that waiting too long could backfire.

“We Mustn’t Be Late.” Daly Warns Against Inaction In her statement, Daly stressed that continued inaction from the Fed could harm the economy, especially employment. While she supported the Fed’s July decision to hold rates steady, she warned that delaying rate cuts for too long could be a mistake. “Policy must align with real economic conditions. And those conditions are changing,” she said. She pointed out that there are already clear signs of a cooling job market. In July, unemployment rose to 4.2%, and only 73,000 new jobs were created, far fewer than expected.

Two Cuts? Possibly Three The Fed’s June outlook hinted at the possibility of two rate cuts by the end of the year. But Mary Daly now suggests that a third cut might be necessary if labor market weakness persists. Her comments open the door for more aggressive monetary easing and reflect growing concerns inside the Fed that keeping rates too high may hinder growth even in the absence of inflation threats.

Inflation Fears? Daly Rejects Them Daly also dismissed the idea that new tariffs introduced by Trump could trigger significant inflation. She stated that there’s no hard evidence suggesting trade tensions are pushing prices up. “Waiting six months for inflation confirmation may be too late to act,” she warned, emphasizing that the Fed needs to be proactive.

Fed in “Compromise Zone” – Balancing Growth and Stability According to Daly, the Fed is currently in a “compromise space”, balancing the need to control inflation while also protecting sustainable employment. She said that every upcoming Fed meeting should be open to discussing potential rate changes, depending on incoming employment and inflation data.

Markets React: September Cut Almost Certain Daly’s comments come as market expectations strongly favor a September rate cut – with 94.4% of traders now predicting a move from the current 4.25–4.50% range to 4.00–4.25%. At the same time, pressure is mounting from President Donald Trump, who has long called for aggressive rate cuts and announced plans to appoint a Fed governor who supports them. However, Daly made it clear that her decisions are based on data, not political influence.

What Does This Mean for the Economy? If the Fed indeed cuts rates three times, it would mark one of the most significant shifts in monetary policy in recent years. Such a move could:

🔹 Stimulate investment

🔹 Lower borrowing costs

🔹 Ease concerns over labor market deterioration But everything hinges on how inflation and employment data evolve. The coming months will be crucial.

#Fed , #FederalReserve , #Inflation , #usa , #economy

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