Three Rate Cuts May Be Necessary, Says Fed’s Mary Daly

San Francisco Fed President Mary Daly has signaled that rate cuts may begin soon, warning more than two may be needed this year.

Daly Signals Fed Rate Cut Likely, Warns Delay Risks Labor Harm

Daly says the possible rate cuts is due to weakening labor market trends and stable inflation. According to a Reuters report, she said the time is approaching for the U.S. Fed to initiate the reduction of interest rates.

Daly explained that continued policy inaction may become misaligned with economic conditions. The San Francisco Fed president said she supported the July decision to hold rates steady but signaled growing discomfort with delaying cuts much longer.

She warned that waiting too long risks harming the labor market and missing the optimal moment for policy adjustment. Daly further stated that there is evidence of softening in the labor market.

U.S. employers added only 73,000 jobs in July while unemployment rate rose slightly to 4.2%. However, Daly said broader labor indicators show consistent weakening.

She stressed that two Fed rate cuts this year, as planned in June, still make sense. But she indicated there could be more rate cuts to come should job weakness persist. She dismissed the concerns that new tariffs will cause inflation.

She claims that there’s no data to prove that trade related price increments are affecting the economy. Daly argued that waiting six months to confirm inflation trends would be too late to act.

Although she did not commit to a September rate cut by the Fed, Daly said every meeting from now on must discuss making such decisions. She emphasized the importance of incoming data from labor and inflation reports.

The Federal Reserve is now operating in a policy “tradeoff space,” Daly explained. The Fed must weigh the balance between restraining inflation and supporting sustainable employment. She believes policy must adjust soon to avoid missing this balance.

Traders React to Trump Pressure and Weak Jobs Data

Daly’s comments follow President Donald Trump’s continued push for immediate rate cuts, including plans to announce a Fed Governor who supports rate cuts. However, she clarified her decisions are based on economic data, not political pressure.

There’s now a 94.4% probability that the Federal Reserve will cut rates at its September meeting. The expected shift is from the current 4.25%–4.50% range to 4.00%–4.25%. Only 5.6% of market participants still anticipate no change in rates.