Headline: Daly Signals Balanced Risks, With Slight Tilt Toward Employment Weakness
Introduction: San Francisco Fed President Mary Daly said the economic outlook is broadly balanced but flagged a modestly higher risk on the jobs side, a tone that markets read as cautiously dovish ahead of the Federal Reserve’s December 10 policy decision.
Daly noted growing concern that labor demand could continue to cool, indicating the labor market is still normalizing from its post-pandemic strength. While overall inflation has eased, she emphasized that services inflation remains sticky and has not been declining in a steady, predictable fashion—an important consideration for the Fed’s data-dependent approach to interest rates.
Her remarks underscore why the December decision is challenging to handicap. Futures pricing suggests markets may be over-focused on December alone: investors increasingly see one rate cut coming across the December–January window, with timing uncertain. By mid-year, traders are leaning toward two cuts—or slightly more—being delivered, reflecting expectations that softer labor conditions and easing price pressures will gradually open the door to monetary policy easing.
Key Points: – Daly describes risks as broadly balanced, with a slight bias toward employment weakness. – Labor demand may continue to slow, signaling a cooler jobs market. – Services inflation remains sticky, complicating the inflation outlook. – Markets see a dovish tilt but are unsure whether a cut lands in December or January. – Futures imply roughly one cut across Dec–Jan and about two cuts by June. – The December 10 Fed meeting remains a closely watched inflection point for rate policy.
