NextFin news, San Francisco Federal Reserve President Mary Daly said on Thursday, September 25, 2025, that the Federal Reserve should avoid returning interest rates to a neutral level, describing such a move as "too risky." Speaking at the San Francisco Fed's 2025 Western Bankers Forum, Daly emphasized that current interest rates remain "modestly restrictive" and indicated that "a little more cutting will be needed over time."
Daly highlighted that inflation pressures, while not as severe as some forecast models predicted, are still evident in the market. She pointed to signs such as longer job searches for new graduates and slowing job-finding rates as indicators of ongoing labor market challenges.
She noted that the inflation impact of tariffs "hasn't been as large as many of the forecast models would suggest it could be," but cautioned that inflation risks persist. Daly also mentioned that the Fed is carefully monitoring labor market data and inflation trends to guide future policy decisions.
Regarding monetary policy, Daly expressed support for the quarter-point rate cut implemented recently and suggested that further policy adjustments are likely necessary to restore price stability while supporting the labor market. However, she warned that the Fed's rate-path projections are not promises and that each decision will require assessing tradeoffs based on evolving economic data.
Additionally, Daly revealed that the Federal Reserve is exploring the use of artificial intelligence in back-office operations but has not yet implemented such technologies.
Her remarks come amid a broader context of the Fed balancing inflation control with sustaining a healthy labor market, with recession risks currently considered low. Daly stressed the importance of avoiding a weakening labor market, noting that once it tips into weakness, recovery is difficult.
These comments reflect ongoing deliberations within the Federal Reserve as it navigates complex economic conditions, including inflation dynamics, labor market shifts, and the effects of tariffs, to determine the appropriate path for interest rates.
Source: Breaking The News, September 25, 2025.
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