Fed’s Mary Daly Says Rate Cut Would Be “Appropriate” if Inflation and Job Market Cool Further
In a recent statement that caught the attention of global markets, Mary Daly, President of the Federal Reserve Bank of San Francisco, said a rate cut could be appropriate later this year—likely in the fall—if current economic trends continue. Her remarks underscore the central bank’s cautious but evolving stance as it seeks to balance inflation control with maintaining a healthy labor market.
Daly’s comments came amid growing speculation about when the Federal Reserve might begin easing its monetary policy. With inflation gradually cooling and the job market showing early signs of softening, investors have been eagerly awaiting clues on the Fed’s next move. While Daly stopped short of committing to a specific timeline, her message was clear: a rate cut is on the table, but only if the data supports it.
A Measured Approach to Policy Easing
Mary Daly made it clear that the Federal Reserve remains committed to a data-driven approach. She emphasized that any decision to lower rates will depend on continued progress toward the Fed’s 2% inflation target and further evidence that the labor market is cooling in a sustainable way.
According to Daly, “A rate cut in the fall could be appropriate if the economy continues to evolve as expected—meaning inflation moves closer to target and the labor market cools further.” However, she also cautioned that a July rate cut would be premature, suggesting that the Fed needs “more confidence in the data” before making such a decision.
This cautious stance reflects the Fed’s ongoing challenge: balancing the need to prevent a sharp economic slowdown while ensuring inflation doesn’t rebound. Daly’s remarks imply that the central bank wants to avoid acting too early, which could risk reigniting price pressures, but also doesn’t want to wait too long, which could weaken the job market unnecessarily.
Inflation Progress Encouraging, But Risks Remain
Recent inflation data in the United States has been encouraging, with consumer prices showing a steady decline from the highs of 2022. The Fed’s preferred measure, the core Personal Consumption Expenditures (PCE) price index, has gradually moved closer to the 2% target. However, some officials, including Daly, believe the fight against inflation isn’t over yet.
Daly explained that while progress has been made, inflation remains “sticky” in some categories, particularly in services and housing. She noted that policymakers must be careful not to interpret short-term improvements as a guarantee of long-term success.
“We’ve seen good progress, but we need to be sure inflation is on a sustainable path toward 2%,” Daly said. “That means waiting for data that gives us confidence that prices will continue to stabilize.”
Her comments align with other Fed officials who have urged patience, stressing that a few months of positive data are not enough to declare victory. The Fed’s cautious tone reflects lessons learned from past cycles when premature easing led to inflationary rebounds.
Labor Market Still Solid, But Cooling
Another key consideration for the Fed is the state of the U.S. labor market. Over the past two years, the job market has been remarkably resilient, with low unemployment and steady wage growth. However, there are signs that momentum is slowing.
Daly acknowledged that while labor demand remains strong, there are “emerging signs of softening,” such as fewer job openings, slower hiring rates, and a modest decline in wage growth. These developments suggest that the labor market is moving toward better balance—a positive sign for the Fed as it looks to reduce inflationary pressures without causing widespread job losses.
Still, Daly was quick to clarify that the Fed is not seeing a severe slowdown. “We are not witnessing a meaningful or persistent decline in employment,” she said. “But if we did, that would be a signal that policy may need to adjust.”
Her remarks highlight the fine line the Fed is walking. On one hand, it wants to prevent the economy from overheating. On the other, it must ensure that restrictive monetary policy doesn’t tip the economy into a recession.
Guarding Against Premature Easing
One of Daly’s strongest points was her warning against cutting interest rates too soon. She noted that the Fed “cannot afford to allow the labor market to weaken too much while waiting for inflation to tick back up.” In other words, the central bank needs to time its move carefully—ensuring inflation is under control while avoiding unnecessary economic damage.
“Monetary policy works with long and variable lags,” Daly said, meaning that the effects of previous rate hikes are still working their way through the economy. Cutting rates too quickly could undo some of that progress and risk a resurgence in prices.
This cautious tone echoes recent comments from other Fed officials, including Chair Jerome Powell, who has reiterated that the Fed will act only when it has “greater confidence” that inflation is sustainably moving toward target.
Market Reactions and Investor Sentiment
Financial markets responded cautiously to Daly’s remarks. Bond yields edged slightly lower, while equity markets saw modest gains, reflecting optimism that the Fed is preparing for potential easing later this year. The U.S. dollar, meanwhile, held steady as traders assessed the balance between inflation risks and rate-cut prospects.
Analysts interpreted Daly’s comments as a signal that the first rate cut could come in the fall, possibly in September or November, depending on how the data evolves. “This isn’t a green light, but it’s a clear sign the Fed is preparing the groundwork,” said one market strategist.
Investors are now watching upcoming data releases closely, including CPI, PCE inflation, and employment reports, which could influence the Fed’s timing and pace of future policy adjustments.
Data Dependency: The Fed’s Core Principle
At the heart of Daly’s message is the Fed’s steadfast commitment to data dependency. Rather than following a preset path, policymakers are evaluating each economic development in real time. This approach, Daly said, ensures flexibility and responsiveness to evolving conditions.
“The economy doesn’t move in straight lines, and neither should policy,” she explained. “We have to follow the data wherever it leads.”
For now, Daly believes the current policy stance remains appropriate, suggesting that rates are restrictive enough to bring inflation down without causing significant harm to growth. However, she left the door open for adjustments if the economic landscape shifts.
Conclusion: Cautious Optimism
Mary Daly’s comments offer a window into the Federal Reserve’s current mindset—one of cautious optimism tempered by vigilance. A rate cut is possible, perhaps even likely, later in 2025, but only if inflation and employment data align in the coming months.
Her remarks reinforce the idea that the Fed’s decisions will be guided by evidence, not speculation. For businesses, investors, and consumers, that means staying alert to economic indicators that could influence the timing of the next major policy move.
In summary, Daly’s balanced tone suggests that while the era of aggressive rate hikes may be behind us, the path to lower rates will be gradual, deliberate, and data-driven—ensuring that the U.S. economy remains steady as it transitions toward sustainable growth.
