MNI: Fed Likely Needs To Cut In Coming Months -Daly

The Federal Reserve will likely need to lower interest rates "in the coming months" to prevent further labor market weakening while still putting downward pressure on inflation, San Francisco Fed President Mary Daly said Wednesday. 

"The labor market has softened. And I would see additional slowing as unwelcome, especially since we know that once the labor market stumbles, it tends to fall quickly and hard," she said in remarks prepared for the Anchorage Economic Summit in Anchorage, Alaska. 

"All this means that we will likely need to adjust policy in the coming months. Recalibrating it to match the collective risks to both of our mandated goals." 

The Labor Department's latest jobs report showed below-expected hiring in July and major downward revisions to job creation in May and June, marking the three weakest months of payrolls since the pandemic. But inflation has also picked up as President Trump's trade war continued. 

The risks to the Fed's employment and inflation goals are "roughly balanced," Daly said. 

"Inflation, absent tariffs, has been gradually trending down, and with a slowing economy and ongoing restrictive monetary policy, should continue to do so," she said. "Tariffs will boost inflation in the near term, but likely not in a persistent way that monetary policy would need to offset."

She told Reuters earlier this week it's more likely the Fed will need to cut more than twice this year than fewer, especially if the labor market weakens and tariffs-driven inflation doesn't spill over into other prices. (See: MNI INTERVIEW: Nimble Fed Needed To Tackle Slowdown -Koenig)