Are "Dovish Voices" Resurfacing Within the Fed?

After a period of quiet, voices calling for interest rate cuts within the Federal Reserve are making a comeback. San Francisco Fed President Mary Daly recently stated that she supports a rate cut next month, as she believes the risk of a sudden deterioration in the job market is both greater and harder to control than a sharp resurgence of inflation.

It's evident that she now views preventing a sudden collapse of the labor market as more urgent than guarding against the risk of reignited inflation.

Daly does not have a vote on the FOMC this year but is a voting member in 2027. Nonetheless, her views remain highly noteworthy because her stance on monetary policy generally aligns with that of Fed Chair Jerome Powell, and she rarely expresses dissenting opinions.

"The labor market is now fragile enough, facing the risk of a sudden deterioration. It's hard to believe the Fed can stay ahead of the pace of changes in the labor market," she added. This underscores just how unstable the current job market is.

The US job market is currently in a state of equilibrium characterized by "low hiring, low firing." However, Daly believes this balance is highly likely to break in a negative direction. She warned, "If businesses start reducing hiring due to declining output, the situation could spiral out of control."

In contrast, concerns about inflation appear relatively muted. While some worry that tariff policies from the Trump administration could push prices higher, Daly stated, "The price pressures from tariffs aren't as large as initially feared," and downplayed the risk of a sharp spike in inflation. Her logic is that efforts to suppress prices should not inadvertently cost people their jobs.