Potential Interest Rate Cut by the Fed, What Impact?

Jakarta, Pintu News – San Francisco Federal Reserve President Mary Daly signaled that interest rate cuts may begin soon, with the possibility of more than two cuts this year. Weak labor market conditions and stable inflation are the main reasons behind this decision.

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Daly’s explanation for the rate cut

Mary Daly emphasized that the current monetary policy may no longer be aligned with the existing economic conditions. In a report by Reuters, Daly stated that the time to reduce interest rates is approaching. The decision to keep rates on hold in July was supported, but Daly expressed concerns about delaying further rate cuts.

According to Daly, delaying the rate cut for too long could hurt the labor market and miss the optimal moment for policy adjustment. He also added that there is evidence of weakness in the labor market, with only 73,000 new jobs added in July and the unemployment rate rising to 4.2%. Daly emphasized that broader labor indicators show consistent weakness.

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Market Reaction to Labor Data and Political Pressure

Daly’s comments come after President Donald Trump continued to push for an immediate rate cut, including plans to announce a Fed Governor who supports rate cuts.

However, Daly emphasized that his decision is based on economic data, not political pressure. Currently, the probability that the Federal Reserve will cut interest rates at the September meeting stands at 94.4%.

The expected change is from the current range of 4.25%-4.50% to 4.00%-4.25%. Only 5.6% of market participants still anticipate no change in interest rates. Daly emphasized the importance of upcoming data from the labor and inflation reports in each meeting ahead to make such decisions.

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Potential for Further Interest Rate Cuts

Daly emphasized that the two rate cuts planned in June are still reasonable, but he indicated that there could be more rate cuts if the weakness in employment continues. He also dismissed concerns that the new tariffs would cause inflation. Daly argued that there is no data to prove that trade-related price increases affect the economy.

Waiting six months to confirm inflation trends is considered too slow to act. Although Daly did not commit to a rate cut by the Fed in September, he stated that every meeting from now on should discuss the decision. The importance of incoming data from the labor and inflation reports was emphasized again.

Conclusion

Recent comments from Mary Daly suggest that the Federal Reserve may soon take steps to adjust interest rate policy. This decision is taken to avoid further risks to the labor market and to stay in tune with changing economic conditions. Market watchers and economic players need to pay attention to these signals to anticipate the possible impact on the overall economy.

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Reference

• Coingape. Three Rate Cuts May Be Necessary, Says Fed’s Mary Daly. Accessed on August 6, 2025
• Featured Image: Generated by Ai