①Mary Daly, President of the Federal Reserve Bank of San Francisco, recently stated that she believes one or two more interest rate cuts may be necessary to address the weakening labor market; ②She noted that compared to inflation, she is more concerned about the labor market.
According to a report by Cailian Press on February 8 (edited by Bian Chun), Mary Daly, President of the Federal Reserve Bank of San Francisco, recently stated that she believes one or two more interest rate cuts may be necessary to address the weakening labor market. Workers are currently facing difficulties as rising prices have eroded wage income while new job opportunities remain scarce.
"On the issue of interest rates, I think we must remain open-minded, very open-minded," Daly said in a media interview last Friday. This was her first interview since the Federal Reserve decided to keep interest rates unchanged at the end of last month.
At the end of last month, the Federal Open Market Committee (FOMC) voted 10 to 2 to maintain the benchmark interest rate in the range of 3.50% to 3.75%, with Fed Governors Miley and Waller both advocating for a rate cut.
"I supported that decision, but frankly speaking, I believe there were also reasons to go further and implement more rate cuts," Daly said. She added that to decide on a rate cut, "you must have a great deal of confidence—really, very confident—that the impact of tariffs will gradually fade... and that inflation is indeed on a downward trajectory."
According to the Fed's preferred measure, U.S. inflation hovered around 3% last year, far above the central bank's 2% target. However, many analysts, including some Fed officials, expect goods inflation to subside by mid-year, leading to an overall slowdown in inflation.
Daly stated that rate cuts would also require "genuine concern that labor market conditions are more severe than current data suggest."
The U.S. unemployment rate in December was 4.4%. Economists surveyed by the media expect that the latest nonfarm payroll data released by the U.S. Department of Labor next week will show the January unemployment rate remaining unchanged. The market's expectation for January's nonfarm payroll growth is concentrated in the range of 60,000 to 80,000. A figure below this range will stimulate expectations for rate cuts.
Notably, the upcoming nonfarm payroll report will also include annual data adjustments. Some investment banks believe that U.S. employment figures for 2025 were systematically overestimated, and annual employment data may be revised downward by 1 million.
Daly said that although the risks between price stability and full employment (the Fed's dual mandate) appear "relatively balanced," in her view, the current vulnerabilities lean more toward the labor market side.
She indicated that if businesses find anticipated demand unmet, layoffs in the labor market may begin to rise. However, given that inflation expectations remain stable, she does not believe inflation will surge significantly.
"Compared to inflation, I am actually more concerned about the labor market," she stated.
Daly is also monitoring another key indicator of the job market: the number of parents who have expressed concerns to her about their children struggling to find jobs. This trend has also been reflected in recent data, with unemployment among recent college graduates higher than the overall workforce.
"This reflects instability in the job market," she noted. "Given the current economic conditions I observe, I tend to support further interest rate cuts, though it’s hard to say whether there will be one or two cuts."
At another event on the same day, Federal Reserve Vice Chair Jefferson stated that there is a possibility of a sudden weakening in the U.S. job market, although he views the current employment situation as generally stable and benefiting from the rate cuts implemented by the Fed thus far.
Editor/Rocky
