San Francisco Federal Reserve President Mary Daly Urges Interest Rate Cut, Likely Starting with Quarter-Point Reduction
By Ann Saphir
In a recent interview with Bloomberg TV, San Francisco Federal Reserve President Mary Daly stated that "the time is upon us" to cut interest rates, with a likely initial reduction of a quarter percentage point. Daly expressed confidence in the decision, stating that it would be difficult to imagine anything derailing a rate cut at the U.S. central bank's upcoming policy meeting on Sept. 17-18.
Daly emphasized that the most likely scenario moving forward is for inflation to gradually slow down while the labor market continues to add jobs at a steady and sustainable pace. If this projection holds true, she believes that adjusting policy at a regular and normal cadence would be reasonable.
Historically, the Fed has adjusted rates in quarter-percentage-point increments, but has also implemented more aggressive measures in response to economic conditions. Daly noted that if any signs of weakness or deterioration emerge in the labor market, a more aggressive approach may be necessary to prevent further issues.
Following the footsteps of Fed Chair Jerome Powell, who recently spoke at a conference in Jackson Hole, Wyoming, Daly echoed the sentiment that the direction of change is down and that the time to adjust policy is now.
The Fed has maintained its policy rate within a range of 5.25%-5.50% since July 2023. Powell emphasized last week that given the progress made in reducing inflation and the cooling of the labor market, it is time to start cutting interest rates.
By the Fed's preferred measure, the year-over-year increase in the personal consumption expenditures price index shows that inflation rose to 2.5% in July, slightly above the Fed's target of 2%. However, this is a significant decrease from the peak of around 7% in 2022.
Despite a slight increase in the U.S. unemployment rate to 4.3% in July, Daly stressed the importance of avoiding a situation where policy remains highly restrictive in a slowing economy. She warned that overly restrictive policy could lead to negative impacts on the labor market and overall economic growth.
Analysis:
In summary, San Francisco Federal Reserve President Mary Daly is advocating for an interest rate cut, with the likelihood of a quarter-percentage point reduction. This decision is driven by a desire to address slowing inflation and maintain a steady pace of job growth. The Fed's move towards easing monetary policy reflects a broader shift towards supporting economic stability and growth. This decision can have implications for businesses, consumers, and investors, impacting borrowing costs, investment decisions, and overall economic conditions. It is important for individuals to stay informed about these developments and consider how they may affect their financial well-being.