San Francisco Federal Reserve Bank President Mary Daly suggested the U.S. economy could require more than the two interest rate cuts planned by the Fed this year.
She expressed her opinion on Monday, citing a forecast that the jobs market is weakening. Quoting from a Labor Department report out earlier this month, Daly said there were 73,000 new jobs created in July of 2025. Similarly, reinforcing those fears, officials revised the May and June job numbers to reveal that just 33,000 jobs had been created between them.
For her part, Daly does not believe that the labor market is unraveling or even teetering on the precipice of an imminent crisis. However, she also observed a clear slowdown in job growth and the rest of the labor market momentum compared to that one year earlier.
Daly stated that she is paying much attention to labor market measures, and the dashboard there “looks mostly bad.”
She stated that she would view any further softening of the labor market as an unwelcome development, indicating concern about the potential negative implications of continued economic slowdown.
Fed signals readiness to cut interest rates
Daly supported the Federal Reserve’s decision last month to keep interest rates steady in the current range of 4.25% to 4.50%. But she made it clear: holding off on cuts won’t be possible much longer.
The two quarter-point interest-rate cuts that Fed policymakers back in June penciled in for this year still “look to be an appropriate amount of recalibration, and less important is, does it happen in September and December than does it happen at all…there’s all kinds of permutations to get those two cuts.”
She added that every upcoming Fed meeting is now a “live meeting,” meaning new policy changes are possible depending on fresh economic data.
Daly warned that if the labor market weakens and inflation remains subdued, more than two interest rate cuts may be necessary. She emphasized that, in her judgment, the Federal Reserve should be prepared to take further action if signs of labor market deterioration persist without any corresponding increase in inflation.
Fed reconsiders policy to balance inflation and jobs
For the Federal Reserve, the twin goals of price stability and full employment are now pulling in slightly different directions.
Daly noted that price pressures remain contained on the inflation front, even in the face of new tariffs imposed earlier this year. While some sectors have seen price increases due to higher import costs, she emphasized that these are not feeding into broader inflation.
Daly noted that there was no evidence to suggest that price increases driven by tariffs were spreading more broadly into overall inflation. She indicated this was a positive sign for the Federal Reserve, as it provided greater flexibility to ease monetary policy without the risk of triggering additional inflationary pressures.
But the picture for jobs is less reassuring. Daly said the Fed is now in a “policy tradeoff space,” where they must carefully balance the risks of acting too soon versus waiting too long.
She warned that if the Federal Reserve waited too long—such as six months to a year—in pursuit of complete certainty before making a policy move, it would almost certainly be too late to respond effectively to emerging economic weaknesses.
Therefore, she thinks the Fed must act in advance and not wait for a reaction. However, the downside is that it may be harder to right the ship and start growing again if it waits until unemployment spikes or consumers retrench.
Daly also noted that while inflation is close to the Fed’s 2% goal, inaction on jobs could underpin efforts to spur the economy.
She said the monetary policy no longer fit where the economy was going and that a review might be in order, indicating that officials will reassess their reports on the performance of the present rate track, which is currently performing well to support evolving economic conditions.
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