Fed’s Daly Keeps Options Open: Rate Cut in Sight or Still Distant?

Federal Reserve Bank of San Francisco leader Mary C. Daly hinted on Thursday that a July rate cut remains possible but offered no strong push for it, as inflation concerns linger despite economic resilience. With price stability elusive, the central bank faces a balancing act—can rates hold steady, or will a cut emerge soon?

Inflation Challenges Persist

Daly emphasized that while progress on inflation is evident, price pressures remain a hurdle, complicating any shift in policy rates amid volatile economic edges. June’s Consumer Price Index reflected some tariff impacts, though broader spillover into persistent inflation appears limited. Other inflation components are easing, suggesting a milder tariff effect than anticipated, yet the focus stays on achieving price stability.

Economy Holds Strong

The economy boasts solid growth and a robust labor market, with businesses showing optimism and no signs of stalling. Daly noted rates have been restrictive for years, and the central bank sees no need for a sharp slowdown to tackle the final stretch of inflation. However, any weakening in the labor market would raise concerns, keeping policymakers cautious.

Rate Cut Timing Debated

Daly dismissed the focus on a July cut as misplaced, suggesting the timing—whether July or September—matters less than the eventual outcome. Two cuts this year seem “reasonable,” with rates likely settling above 3%, higher than pre-pandemic neutral levels. The approach avoids preemptive easing, reflecting shared responsibility among policymakers.

What’s Next for Rates?

The path forward hinges on inflation trends and labor data. A cut could materialize if price pressures ease, but resilience might delay action. Markets face uncertainty—will a rate cut come soon, or will stability prevail?