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Fed's Daly says 'reasonable' to expect two rate cuts before end of 2025
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Fed's Daly says 'reasonable' to expect two rate cuts before end of 2025
Jul 17, 2025 11:51 AM

(Reuters) -San Francisco Federal Reserve President Mary Daly reiterated on Thursday it is "reasonable" to expect two interest rate cuts before the end of this year, particularly with the impact of President Donald Trump's tariffs looking more muted than originally expected.

Inflation is still above the U.S. central bank's 2% target and there's still "some work to do" to bring it down, Daly said at the Rocky Mountain Economic Summit in Victor, Idaho. But the Fed also doesn't want to keep rates restrictive for too long because that would unnecessarily hurt the labor market, she said.

"I don't think we need to slow precipitously to produce the last mile on inflation," Daly said. "I wouldn't want to see more weakness in the labor market ... I really wouldn't want to see that, which is why you can't wait forever" on cutting rates. 

Companies are figuring out ways to avoid tariffs and are not passing on all of their increased costs to their customers, and despite a doubling of the effective average tariff rate under Trump the increased levies on imports are not so far spilling more broadly into overall inflation.

"We haven't seen any evidence that that's occurring," Daly said, though recent consumer price data does show the price of goods is rising. Offsetting that, however, is encouragingly lower inflation in non-housing-related services inflation, she said.

Asked if she would support reducing the current policy rate range of 4.25%-4.50% when the Fed meets in two weeks, Daly noted that she expects rate cuts to resume as inflation falls, with the policy rate at an ultimate settling point of 3% or somewhere higher than that level.

"Whether it happens in July or September or some other month is really not the most relevant piece," she said. More relevant, Daly added, is that rates will be reduced.

"We don't want to unnecessarily tighten the economy in a way that hurts the labor market or growth. So that's the direction of travel," she said.

Two of the Fed's 19 policymakers have said they believe a July rate cut could be appropriate; others have signaled they expect it to take longer to be able to judge the effect of the tariffs and other Trump policies on inflation and the labor market, and therefore to know if a rate cut would be appropriate. 

Financial markets reflect very little expectation for a rate cut at the Fed's July 29-30 meeting, with bets focused on the September 16-17 meeting as a much more likely time for the policy easing to resume.

Trump has waged an escalating pressure campaign on Fed Chair Jerome Powell to cut rates immediately and raised the possibility of replacing him before his term as U.S. central bank chief expires next May. Powell has repeatedly said he intends to finish out his term as Fed chief.

Daly declined to comment specifically about Trump's comments, but noted that all Fed policymakers participate in interest rate decisions.

"We share equal responsibility when we take that vote" on rates, Daly said.

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