San Francisco Federal Reserve president Mary Daly said Wednesday that the Federal Reserve will likely need to lower rates in the coming months, noting that while tariffs will boost inflation in the near term, the job market has slowed.
"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," Daly said in a speech in Alaska. "All this means that we will likely need to adjust policy in the coming months."
Daly said at the same time tariffs will boost inflation in the near term, but "likely not in a persistent way that monetary policy would need to offset."
Daly's comments come after a government report showed the US economy added just 73,000 jobs in July, while the unemployment rate moved up to 4.2% from 4.1% the month prior. At the same time, the two prior months saw downward revisions. May's job gains were revised down to 19,000 from 144,000, while June's additions were cut to just 14,000 from the 147,000 initially reported. That pulled the three-month average employment gain down to 35,000 — a figure many analysts are interpreting as a sign that hiring is stalling, even as population growth slows.
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
Daly noted that inflation, absent tariffs, has been gradually trending down and that with a slowing economy and ongoing "restrictive monetary policy, should continue to do so."
Daly's comments come after Fed Chair Jay Powell said last week during his press conference following the Fed's policy meeting that no decision has been made on whether to cut rates in September and that more time is needed to assess how Trump's tariffs will affect the path of inflation and the strength of the US economy.
He told reporters there is still "a long way to go" to determine exactly the impact of tariffs, and "you have to think of this as still quite early days."
Meanwhile, FOMC vice chair and New York Fed president John Williams said he still thinks the job market is in "solid" shape but added that the downward revisions in jobs created in July were unsettling.
At the same time, Fed governors Chris Waller and Michelle Bowman dissented at last week's policy meeting, preferring to cut rates by 25 basis points rather than hold rates steady. Both are more concerned about the job market than the impact of tariffs on inflation.
"We don't have perfect clarity," Daly said. "But the truth is central banks rarely have perfect clarity, and we can't wait for it to act."
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Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.
