San Francisco Fed's Daly says jobs report complicates interest rate call

• February jobs report showed job losses versus expectations for a 50,000 gain, marking the third jobs decrease in the past five months
• The Fed previously cut its benchmark interest rate three times (75 basis points total) in late 2025, but has since taken a more cautious approach due to above-target inflation and concerns about the Iran war
• Futures traders responded by raising odds for rate cuts, moving the next expected cut to July and increasing probability for two reductions by year-end

Summary: San Francisco Fed's Daly on Jobs Report and Interest Rate Policy

Key Development:

San Francisco Federal Reserve President Mary Daly stated that the weak February jobs report has complicated the central bank's interest rate decision-making process. The Bureau of Labor Statistics reported negative job growth in February, marking the third jobs decrease in five months, missing expectations of a 50,000 gain.

Policy Implications:

Daly emphasized the challenging environment created by two conflicting factors: a softening labor market and inflation persistently running above the Fed's 2% target. She cautioned against overreacting to one month of data but acknowledged the report "has got my attention" and cannot be ignored.

Fed's Recent Actions:

The Federal Reserve cut its benchmark interest rate three times (totaling 75 basis points) in late 2025. Since then, policymakers have adopted a more cautious stance due to above-target inflation and concerns stemming from the Iran war.

Market Response:

Following the jobs report, futures traders increased expectations for rate cuts, advancing the timing of the next reduction to July and raising the probability of two cuts by year-end.

Daly's Position:

The San Francisco Fed president indicated that raising rates in the current environment would be difficult given labor market uncertainty. She expressed hope that the 75 basis points in cuts from 2025 would "put a floor underneath the labor market." Daly does not hold a voting position on the Federal Open Market Committee in 2026 but will vote again in 2027.

Bottom Line:

The Fed faces a difficult balancing act between supporting a weakening labor market and combating persistent inflation, complicating the path forward for monetary policy.