San Francisco Federal Reserve President Mary Daly indicated that the U.S. Federal Reserve might begin cutting interest rates soon, potentially starting with a quarter-percentage point reduction at the upcoming September 17-18 policy meeting. Daly emphasized that given the current economic conditions, it's challenging to imagine a scenario where this rate cut wouldn't occur.

Daly highlighted that the most likely scenario is for inflation to continue its gradual decline while the labor market remains strong, adding jobs at a sustainable pace. She suggested that, under these conditions, it would be appropriate to adjust monetary policy in a "regular, normal cadence."

The Fed has kept its policy rate in the 5.25%-5.50% range since July 2023, following a series of aggressive rate hikes in 2022 and 2023 aimed at combating inflation. Daly echoed Fed Chair Jerome Powell's recent comments, noting that the "time to adjust is now" due to the declining inflation trend and the current state of the labor market.

In July, the Fed's preferred inflation measure, the personal consumption expenditures (PCE) price index, rose 2.5% year-over-year, a significant drop from its peak of around 7% in 2022. The U.S. unemployment rate stood at 4.3% in July, slightly higher than a year ago but still low by historical standards.

Daly warned against maintaining overly restrictive monetary policy as the economy slows, cautioning that "overtightening" could harm both the labor market and economic growth.