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San Francisco Fed President Mary Daly supports lowering interest rates next month due to concerns about a sudden deterioration in the job market, Nick Timiraos exclusively reports.
On the challenged labor market: Daly said she supports lowering interest rates at the central bank’s meeting next month because she sees a sudden deterioration in the job market as both more likely and harder to manage than an inflation flare-up.
“On the labor market, I don’t feel as confident we can get ahead of it,” she said in an interview Monday. “It’s vulnerable enough now that the risk is it’ll have a nonlinear change.” An inflation breakout, by contrast, is a lower risk given how tariff-driven cost increases have been more muted than anticipated earlier this year, she said.
Why it matters: Daly’s views are notable because, while she doesn’t have a vote on monetary policy this year, she has rarely taken a public position at odds with Fed Chair Jerome Powell. The chair is likely to play the key role resolving differences on a divided rate-setting committee about whether to cut rates or pause at its meeting Dec. 9-10.
Daly said she still thinks the Fed can bring inflation back to its 2% target without an increase in unemployment—and that failing to do so would represent a policy failure.
While the economy has settled in a “low-hiring, low-firing” equilibrium for some time, she sees greater risks that the balance ultimately would break in a negative direction. “If that persists, and you add some additional layoffs, or companies say, ‘My output’s not growing as much as I thought…and I’m going to reduce my employment,’ then I think we are very vulnerable to that,” Daly said.
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