Fed's Daly Sees Labor Market Vulnerabilities, Hints at Rate Cuts

San Francisco Fed President Mary Daly suggests one or two more interest rate cuts may be needed to address labor market weakness.

Published on Feb. 6, 2026

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In an exclusive interview, San Francisco Federal Reserve President Mary Daly said she believes one or two more interest rate cuts may be necessary to counteract vulnerabilities in the labor market, where workers are facing higher prices and scarce job opportunities. Daly said she was supportive of the Fed's recent decision to leave rates unchanged, but added that a case could have been made for further cuts. She cited concerns about a potential shift from a "low-firing" to a "some-firing" labor market environment if businesses don't see expected demand materializing.

Why it matters

Daly's comments suggest the Fed may be open to further easing monetary policy to support the labor market, even as inflation remains elevated. This reflects the central bank's balancing act between its dual mandate of price stability and maximum employment.

The details

Daly told Reuters that to cut rates, the Fed would need to be "really confident" that the effects of tariffs will roll off and that inflation is on a downward trajectory. She also said the central bank would need to be "really worried" that the labor market is more challenged than current data suggests. Daly cited the higher unemployment rate among new college graduates as an indicator of the "precariousness" of the job market.

  • The U.S. unemployment rate was 4.4% in December 2025.
  • The Labor Department is expected to publish the latest unemployment data for January 2026 next week.

The players

Mary Daly

The president of the San Francisco Federal Reserve, who was supportive of the Fed's recent decision to leave interest rates unchanged but suggested one or two more rate cuts may be needed.

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What they’re saying

“I think we have to keep an open mind, a very open mind on rates.”

— Mary Daly, President, San Francisco Federal Reserve (Reuters)

“To cut rates, you have to be pretty confident, like really confident, that the effects of the tariffs will roll off ... that inflation is really on a downward trajectory.”

— Mary Daly, President, San Francisco Federal Reserve (Reuters)

“To cut rates, you also have to be really worried that the labor market is more challenged than we currently see in the data.”

— Mary Daly, President, San Francisco Federal Reserve (Reuters)

What’s next

The Labor Department is expected to publish the latest unemployment data for January 2026 next week, which could provide more insight into the state of the labor market and inform the Fed's future policy decisions.

The takeaway

Daly's comments suggest the Fed may be open to further interest rate cuts to support the labor market, even as inflation remains elevated. This reflects the central bank's ongoing balancing act between its dual mandate of price stability and maximum employment.