Breaking – Fed President Warns Rate Cuts Needed as Employment Softens

• Fed President Mary Daly signals rate cuts are coming soon due to weak job growth and stable inflation. 

• Markets now expect a 94.4% chance of September rate cuts from the current 4.25%-4.50% to 4.00%-4.25%. 

• Lower rates typically boost crypto markets as investors seek higher returns outside traditional assets.

San Francisco Federal Reserve President Mary Daly has indicated that interest rate cuts may begin soon, with potential for more than two reductions this year. Her comments signal a shift in Federal Reserve policy as economic conditions evolve.

Daly cited weakening labor market trends and stable inflation as primary drivers for the anticipated rate cuts. She warned that continued policy inaction could become misaligned with current economic conditions.

The Federal Reserve official supported July’s decision to maintain steady rates but expressed growing concern about delaying cuts further. She emphasized that waiting too long risks damaging the labor market and missing the optimal timing for policy adjustments.

Labor Market Shows Signs of Softening

Recent employment data reveals concerning trends in the U.S. job market. Employers added only 73,000 jobs in July, while the unemployment rate increased to 4.2%. Daly noted that broader labor indicators demonstrate consistent weakening across multiple sectors.

The San Francisco Fed president maintained that two rate cuts this year remain sensible, aligning with June projections. However, she indicated additional reductions could follow if job market weakness persists.

Daly dismissed concerns about new tariffs driving inflation higher. She argued that no data support claims that trade-related price increases significantly impact the economy. The Fed official warned that waiting six months to confirm inflation trends would delay necessary action.

Market Expectations and Political Pressure

Financial markets have responded decisively to Daly’s statements and recent economic data. Traders now assign a 94.4% probability to Federal Reserve rate cuts at the September meeting. The anticipated shift would move rates from the current 4.25%-4.50% range to 4.00%-4.25%. Only 5.6% of market participants expect rates to remain unchanged.

President Donald Trump continues advocating for immediate rate cuts and plans to announce a Federal Reserve Governor who supports rate reductions. However, Daly clarified that her decisions stem from economic data analysis rather than political influence.

The Federal Reserve now operates in what Daly described as a “tradeoff space.” This requires a careful balance between controlling inflation and supporting sustainable employment levels. She stressed that policy adjustments must occur soon to maintain this critical balance.

Daly emphasized that every Federal Reserve meeting will include discussions about rate cut decisions. She highlighted the importance of monitoring incoming data from labor reports and inflation measurements to guide future policy choices.