Daly Sends Dovish Signal: Initiating a Rate Cut This Year Remains a "Reasonable Path"
Mary Daly, President of the San Francisco Fed, expressed her support for the Fed implementing a rate cut this year during her speech at the "Rocky Mountain Economic Summit" in Idaho this week. She indicated that if the Fed waits until inflation fully falls to the 2% target before taking action, it might result in avoidable economic damage.
Concerns Over "Waiting Too Long," Advocating Timely Adjustments
Daly emphasized that the current economic conditions remain robust, with strong consumer spending and businesses managing the cost pressures from Trump's tariffs. In this context, the Fed has room to maintain current interest rates. However, if inflation continues to modestly decline, action should not be delayed. She noted:
"You cannot wait forever. If we have to wait until inflation precisely hits 2%, the economy might already be affected."
Strategically, she believes that an early implementation of moderate rate cuts would help stabilize market expectations, avoiding economic shocks from drastic moves after significant inflation declines.
Dot Plot Reflects Internal Opinion Divide, But Two Rate Cuts Have Consensus Basis
The dot plot released at the June FOMC meeting showed differing views among Fed officials on the future path of interest rates. About half of the 19 members believe in cutting rates twice this year, while a minority expects no need for rate cuts until 2025.
Daly agrees with the "reasonable path" outlined by the dot plot, advocating two moderate rate cuts this year. She also acknowledged that tariffs indeed drive up commodity prices, but inflation in services prices has eased, providing a feasible basis for easing monetary policy.
Officials' Opinions Diverge: Battle Between Doves and Cautious Ones Intensifies
Despite Daly's dovish signaling, other senior Fed officials have spoken more cautiously this week. Fed Governor Kugler stated that the current rates should be maintained "for some time" to prevent tariff-driven inflation risks.
New York Fed President Williams also noted recently that current restrictive policies remain "appropriate," emphasizing the need to continue observing for potential inflation impacts from tariffs.
This division in stance reveals ongoing deep discussions within the Fed about policy direction. Some members lean towards "waiting and observing," while others wish to prevent economic turmoil from policy delays.
Market on Hold: Data Will Decide Rate Cut Pace
Market data shows traders currently have a split expectation for a rate cut in September. Investors are closely watching upcoming inflation, employment, and consumer data to judge whether the Fed will initiate the rate-cutting cycle this year as supported by Daly.
The economic trend over the next few months will determine whether the Fed will truly start a loose policy cycle and whether this policy path will gain more internal support.
Balancing Policy Timing and Economic Signals
Daly's comments have provided new policy support for a rate cut this year, also injecting some confidence into the market. However, the current decision-makers remain highly vigilant of the dual challenges from "tariffs + high inflation." Given the clear divisions, how the Fed balances short-term price fluctuations with long-term inflation targets will become the greatest challenge for future monetary policy.
