MNI INTERVIEW: Fed's Daly: Time To Think About Adjusting Rates

Federal Reserve Bank of San Francisco Mary Daly told MNI on Thursday the Fed should start thinking about cutting interest rates, potentially twice this year, and it's possible that a large tariffs-driven increase in inflation does not materialize. 

"I really am of a view that it's time to think about normalizing, or adjusting – perhaps not normalizing just yet – but at least adjusting the interest rate to ensure that we can continue to say the following: The economy's in a good place and policy's in a good place. So I see two cuts as a likely outcome," she told a MNI Livestreamed Connect event.

To support a September rate cut, Daly said she's looking for "a continuation of what we've been seeing, which is modest" disinflation.  

The most likely outcome for how tariffs impact the U.S. economy has coalesced around two possibilities, she said. The first is a one-off delayed impact "which we can ultimately look through," and the second that "it's possible it just doesn't materialize to a large increase in price of inflation for consumers because the businesses find ways to adjust," Daly said. "I started with this view that this could possibly happen, and I really haven't been dissuaded from it." 

It's still possible the impact on inflation is delayed and persistent, but "I don't see that as most likely," Daly said. (See: MNI INTERVIEW: Bostic Backs Go-Slow On Rates As Tariffs Linger)