Mary Daly: Federal Reserve Rate Cuts on the Horizon Amid Economic Shifts

San Francisco Fed President Mary Daly Signals Further Interest Rate Cuts to Stabilize U.S. Economy

San Francisco Federal Reserve Bank President Mary Daly expressed her full support for the central bank's recent interest rate cut, a move aimed at aligning policy with current economic conditions. In a recent interview, Daly suggested that one or two more rate cuts could be on the horizon if the U.S. economy continues to evolve as expected.

Interest Rate Cuts to Address Shifting Labor Market and Inflation

During an interview with KTVB at Boise State University, Daly discussed how the labor market has "downshifted," a key factor in her decision to back the U.S. central bank’s half-percentage-point interest rate cut last month. She also expressed growing confidence that inflation is trending towards the Federal Reserve's 2% target, a crucial benchmark for long-term economic stability.

Real Interest Rates and Economic Stability

With the Federal Reserve maintaining its policy rate in the 5.25%–5.50% range since July 2023, Daly highlighted the growing real rate of interest. She cautioned that without intervention, this could lead to a breaking point for the economy. “We were not gaining anything new on the inflation trajectory,” she explained, emphasizing the necessity of the rate cut to prevent further economic slowdown.

Potential for More Rate Cuts in 2024

Looking ahead, Daly agreed with projections that suggest one or two more quarter-point interest rate cuts could take place before the end of the year. “Two more cuts this year, or one more cut this year, really spans the range of what is likely in my mind,” she noted, based on her economic forecasts.

Federal Reserve’s Broader Policy Debate

While Daly stands firmly in favor of the rate adjustments, other Federal Reserve policymakers have expressed varying levels of enthusiasm. For example, Fed Governor Michelle Bowman openly dissented against the September rate cut. However, the minutes from the meeting revealed a consensus across the board that the move should not be interpreted as a signal of a less favorable economic outlook.

Labor Market at Full Employment

Despite concerns about a potential slowdown, Daly views the U.S. labor market, with its current unemployment rate near 4.1%, as being at or near full employment. However, she warned against further weakening of the labor market, reinforcing her support for additional interest rate cuts to maintain economic momentum.

Conclusion

As the Federal Reserve navigates a challenging economic landscape, Mary Daly’s comments provide insight into the bank’s strategy to stabilize inflation and sustain employment. The possibility of further rate cuts in 2024 reflects the Fed's ongoing commitment to aligning its policies with economic realities.