By Ann Saphir
San Francisco Fed President Mary Daly emphasized the need for interest rate cuts by the Federal Reserve to maintain the health of the labor market. However, the extent of the rate cut will depend on incoming economic data, Daly stated in an interview with Multibagger.
Daly highlighted the risk of over-tightening monetary policy as inflation declines and real interest rates rise in a slowing economy. She emphasized the importance of sustaining and protecting labor market health to prevent further slowdown.
While the labor market has softened, it remains relatively strong, according to Daly. The Fed is expected to announce a rate cut at its upcoming policy meeting in September, following a period of rate hikes to combat inflation.
Analysts anticipate a quarter-point rate cut, but are awaiting the U.S. Labor Department's August employment report for potential signals of further job market weakness that could prompt a larger Fed response.
Financial markets have speculated about a half-point rate cut after recent data showed a decline in job openings and a decrease in the job openings to job seekers ratio. However, Daly views the labor market as balanced rather than weak.
She emphasized the importance of maintaining price stability and exerting downward pressure on inflation, given that it remains above the Fed's 2% target. Daly stressed the need to support the labor market while gradually reducing inflation to avoid economic disruption.
Analysis:
In summary, San Francisco Fed President Mary Daly advocates for interest rate cuts to protect the labor market amid concerns of over-tightening and inflation. The upcoming Fed policy meeting is expected to result in a rate cut, but the extent will depend on economic data and job market conditions. Daly's focus is on maintaining a healthy labor market while addressing inflationary pressures to achieve long-term economic stability.