Fed Official Signals Potential Rate Cuts as Labor Market Slows and Inflation Stabilizes

Mary Daly, President of the Federal Reserve Bank of San Francisco, has indicated that the U.S. Federal Reserve may be moving closer to implementing interest rate cuts in response to a slowing labor market and stable inflation levels. While not confirming a cut at the upcoming September meeting, Daly emphasized that the Fed remains open to adjusting monetary policy as economic conditions evolve [1]. She highlighted that “every meeting going forward is a live meeting to think about these policy adjustments,” signaling a shift in the central bank’s cautious stance [1].

Daly noted that the timing and scale of rate reductions will depend heavily on incoming data, but suggested that more than two cuts could be necessary if labor market weakness persists and inflationary pressures remain subdued [2]. Conversely, if inflation were to unexpectedly rise or the job market showed signs of improvement, the Fed could opt for fewer cuts [3]. This data-driven approach reflects the Fed’s ongoing balancing act between supporting employment and maintaining price stability.

Market expectations have already begun to reflect the possibility of rate cuts. Fed Funds futures indicate a 79.7% probability of a 25-basis-point reduction at the September FOMC meeting, suggesting strong investor confidence in a shift toward accommodative monetary policy [4]. Analysts suggest that lower borrowing costs could stimulate economic activity by increasing liquidity and encouraging capital reallocation to higher-yielding assets [7]. The cryptocurrency market has also responded positively, with some observers drawing parallels to previous bull cycles that followed similar policy shifts [8].

Daly’s comments have also highlighted the urgency of potential action. “I was willing to wait another cycle, but I can’t wait forever,” she stated, indicating that the window for a policy pivot is narrowing [6]. The central bank will continue to monitor key indicators, including employment trends, inflation, and consumer behavior, before making any final decisions [9].

Currently, the Fed has several officials supporting the case for rate cuts, including Lael Brainard and Christopher Waller, with Daly now joining their ranks [1]. If President Trump follows through on replacing the resigned Kugler with a rate cut advocate, the number of supportive votes could reach four, moving closer to the seven required for a policy shift [1]. However, any decision will still depend on broader economic developments and the outcome of the September meeting.

As the central bank prepares for its upcoming policy decision, market participants are closely watching for further guidance. Daly’s remarks reinforce the likelihood of a policy pivot but also underscore the uncertainty surrounding the pace and scale of potential rate reductions [10].

Sources:

[1] (Investing.com) https://www.investing.com/news/stock-market-news/feds-daly-signals-readiness-for-rate-cuts-as-job-market-softens-93CH-4168769

[2] (Cryptopolitan) https://www.cryptopolitan.com/daly-says-three-rate-cuts-may-be-needed/

[3] (FastBull) https://m.fastbull.com/news-detail/feds-daly-says-time-is-nearing-for-rate-4338232_0

[4] (Pride) https://www.prideag.com/news/story/33853488/stocks-set-to-open-higher-as-investors-bet-on-fed-rate-cuts

[6] (Fidelity) https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202508041607RTRSNEWSCOMBINED_KBN3JQ1FE-OUSBS_1

[7] (AInvest) https://www.ainvest.com/news/market-wrap-stocks-surge-fed-signals-rate-cuts-2508/

[8] (AInvest) https://www.ainvest.com/news/bitcoin-news-today-fed-officials-signal-2023-rate-cuts-boosting-crypto-optimism-2508/