San Francisco Federal Reserve Bank President Mary Daly recently indicated that the U.S. economy may necessitate more than the two interest rate reductions currently projected by the Federal Reserve for the year. Her assessment is driven by a notable deceleration in the labor market, prompting a re-evaluation of the central bank’s monetary policy in light of evolving economic indicators.
- San Francisco Fed President Mary Daly suggests the U.S. economy may need more than two interest rate cuts this year.
- This perspective stems from a significant slowdown in the labor market, with only 73,000 new jobs in July 2025 and substantial downward revisions for May and June.
- Despite this, Daly supported the Federal Reserve’s recent decision to maintain interest rates within the 4.25% to 4.50% range.
- She emphasized that every upcoming Federal Open Market Committee meeting is now a “live meeting,” requiring immediate responsiveness to new economic data.
- Daly advocates for proactive policy adjustments, given contained inflationary pressures and a less reassuring employment outlook.
Daly highlighted concerning employment data that underscores her reservations. A recent Labor Department report indicated the creation of only 73,000 new jobs in July 2025. Furthermore, figures for May and June were significantly revised downward, revealing a combined total of just 33,000 jobs generated across those two months. While not signaling an immediate crisis, Daly noted a clear deceleration in job growth and overall labor market momentum compared to the prior year, describing key indicators on her internal dashboard as “mostly bad.” She stressed that any further softening in these metrics would be an unwelcome development for the economic landscape.
The Federal Reserve’s Policy Calibration
Despite her support for the Federal Reserve’s decision last month to maintain interest rates in the 4.25% to 4.50% range, Daly underscored that this holding pattern cannot persist indefinitely. She acknowledged that the two quarter-point rate cuts anticipated by policymakers in June still appear to be an “appropriate amount of recalibration” under current projections. However, she asserted that every upcoming Federal Open Market Committee meeting is now a “live meeting,” implying a crucial need for immediate responsiveness to fresh economic data. Daly emphasized that if the labor market continues to weaken and inflation remains subdued, more than two interest rate cuts may become necessary, indicating that the Fed must be prepared for further, decisive action.
Navigating the Dual Mandate
The Federal Reserve’s dual mandate—achieving price stability and maximum employment—now presents a complex “policy tradeoff space,” according to Daly. She observed that inflationary pressures remain contained, even amidst new tariffs, and are not broadly spreading into overall inflation. However, the employment outlook is less reassuring. Daly cautioned against delaying policy adjustments in pursuit of absolute certainty, warning that waiting six months to a year could render subsequent responses ineffective. She advocated for proactive measures, asserting that postponing action until unemployment spikes or consumer spending significantly contracts would make economic recovery substantially more challenging. This perspective suggests a potential need for the central bank to reassess its current monetary policy to align with evolving economic conditions and ensure it effectively supports the economy’s trajectory.
Jonathan Reed received his MA in Journalism from Columbia University and has reported on corporate governance and leadership for major business magazines. His coverage focuses on executive decision-making, startup innovation, and the evolving role of technology in driving business growth.