San Francisco Fed's Daly: Jobs Report Clouds Interest Rate Decision

• February jobs report showed employment decline, the third jobs decrease in the past five months, against expectations for a 50,000 gain
• The Fed cut rates three times (75 basis points total) in late 2025 and has since paused due to persistent above-target inflation and Iran war concerns
• Futures traders raised odds for rate cuts following the report, pricing in the next cut for July and two total reductions by year-end

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

Key Development:

San Francisco Federal Reserve President Mary Daly stated that the weak February jobs report complicates the Federal Reserve's interest rate decision-making process. The Bureau of Labor Statistics reported job losses in February against expectations for a 50,000 gain, marking the third jobs decrease in the past five months.

Policy Position:

Daly did not commit to a specific rate stance but highlighted the challenging environment created by:

• A softening labor market
• Inflation persistently running above the Fed's 2% target

She emphasized this represents "a balance of risks calculation," noting the jobs report "has got my attention" while cautioning against overreacting to a single month of data.

Recent Fed Actions:

The Federal Reserve cut its benchmark interest rate three times (totaling 75 basis points) in late 2025 but has since adopted a more cautious approach due to above-target inflation and concerns related to the Iran war.

Market Reaction:

Following the jobs report, futures traders increased expectations for rate cuts:

• Next cut pulled forward to July
• Higher probability of two rate reductions by year-end

Policy Outlook:

Daly indicated hiking rates is particularly difficult given labor market uncertainty, stating "we just need more time." She contrasted the current environment with 2019 rate cuts when inflation was below target, emphasizing today's elevated inflation complicates decision-making.

Note: Daly does not have a voting seat on the Federal Open Market Committee in 2026 but will vote again in 2027.