Fed’s Daly Backs December Rate Cut, Says Jobs Risk Now Bigger Threat Than Inflation

 Key takeaways

• San Francisco Fed President Mary Daly says she supports a December rate cut, arguing the labour market is now more fragile than inflation is dangerous.

• She sees the risk of a “nonlinear” jump in unemployment as higher and harder to manage than another inflation flare-up.

• Daly downplays tariff-driven inflation pressures and stresses the Fed should not delay cuts today just because it might need to hike again next year.

• Her stance aligns with New York Fed President John Williams’ recent comments and has pushed market odds of a December cut back above 50%.

• The Fed remains visibly split: doves worry about job losses; hawks warn inflation is still too high, especially in services.

San Francisco Fed President Mary Daly has come out clearly in favour of cutting rates at the Fed’s Dec 9–10 meeting, saying the bigger danger now is a sudden break in the labour market rather than an inflation surprise.

Daly told the Wall Street Journal that the US economy is in a “low-hiring, low-firing” equilibrium that could quickly tip the wrong way if firms start trimming staff as growth slows. In her view, that “nonlinear” jump in unemploymentwould be harder to control than an inflation flare-up, especially since tariff-related cost pressures have been more muted than feared earlier in the year.

While she doesn’t vote on policy this year, Daly is seen as closely aligned with Fed Chair Jerome Powell and rarely breaks publicly with leadership. Her comments follow similar remarks from New York Fed President John Williams, who said there is room to lower rates “in the near term” to avoid “undue risks” to the labour market. Together, the two have helped swing market pricing back toward a December cut, after odds had dipped below 50% earlier this month.

Inside the Fed, however, the debate is sharpening. A growing number of officials argue that inflation near 3%, sticky services prices and tariff-exposed goods still justify caution, warning that cutting too fast could leave the Fed scrambling if growth re-accelerates next year. Daly pushed back on the idea that fear of future reversals should block action now, saying she is not prepared to assume the Fed’s “hands are tied” in 2026—either for more cuts if growth weakens further, or hikes if needed.

Daly framed the December decision as a pure risk-management call: weighing the dangers of moving versus standing still. For her, the cost of not cutting now is higher than the cost of cutting and potentially adjusting later—underscoring why the next meeting is shaping up to be one of the Fed’s most finely balanced calls of this easing cycle.