One Fed governor calls for more aggressive rate cuts

San Francisco Fed President Mary Daly pushes for more rate cuts amid concerns that policymakers may have acted too hastily in September.

In an interview with The Wall Street Journal, Daly asserted that interest rates are “absolutely” still too high for sustained economic growth, and she emphasized the need for further cuts to avoid unnecessary strain on the job market.

Daly was notably clear on how much rates need to drop, identifying 3% as the critical “neutral” rate level for monetary policy.

In Fed terms, a “neutral” rate represents a balanced point where policy neither holds back nor boosts economic growth. At 4.75%, the benchmark rate still sits 175 basis points above Daly’s target for neutrality.

In a speech earlier this month, Daly defended the Fed’s half-point cut in September, calling it a “right-sizing” move that acknowledged the progress made on inflation without compromising their price stability mandate.

Daly was among 10 Federal Open Market Committee (FOMC) members who supported the larger-than-usual cut.

Yet with recent economic data emerging, investors are beginning to second-guess the Fed’s approach.

A complicated outlook

Daly’s confidence in the Fed’s path came after recent data indicated inflation pressures haven’t fully cooled.

Although headline inflation eased in September, core inflation—excluding food and energy—rose unexpectedly, with certain categories, like dining out and housing costs, remaining stubbornly high.

Fed Governor Christopher Waller acknowledged that the inflation numbers were “disappointing” and cautioned that policymakers “should proceed with more caution” on rate cuts.

The latest data from the Labor Department also showed 254,000 new jobs added in September, with unemployment falling to 4.1%, signaling that the economy may be managing well without further Fed intervention.

Amid these developments, some, including The Kobeissi Letter, have criticized the Fed’s September rate cut, saying a half-point reduction “made absolutely no sense.”

Investors now largely expect a more conservative 0.25% cut in November. According to CME Group’s FedWatch Tool, there’s a 99% probability of this outcome.

Still, the chances of another rate cut in December have dipped slightly.

Atlanta Fed Bank President Raphael Bostic recently cautioned that another November rate cut isn’t a foregone conclusion, as policymakers assess ongoing inflation trends.

The unpredictable inflation data, Bostic noted, suggests that “maybe we should pause in November

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