San Francisco Fed President Mary Daly emphasized the need for the Federal Reserve to cut interest rates to maintain a healthy labor market, stating that the decision will depend on incoming economic data. In an interview, Daly warned that rising real interest rates in a slowing economy could lead to over-tightening, which might further weaken the labor market.

While acknowledging that the labor market has softened, she noted it remains healthy, with wages growing faster than inflation and job opportunities still available.The Fed is widely expected to announce a quarter-point rate cut at its upcoming policy meeting on September 17-18.

Analysts are closely monitoring the U.S. Labor Department's August employment report, set to be released soon, for signs of further job market softening that could prompt a more aggressive response from the Fed. Recent government data indicating a drop in job openings has fueled speculation about a potential half-point rate cut, although Daly maintains that the labor market is currently balanced and not showing signs of significant weakness.

Daly highlighted the importance of keeping the labor market stable to help individuals recover from the losses incurred during high inflation periods. She expressed the Fed's commitment to achieving price stability while ensuring that economic growth continues. As the Fed prepares for its upcoming meeting, Daly is gathering data and insights to make informed decisions, emphasizing the need for a careful approach to monetary policy in the face of ongoing economic uncertainties.