Softening Job Market Prompts Calls for Rate Cuts
San Francisco Federal Reserve President Mary Daly has raised concerns over the current state of the U.S. labor market, stating that labor demand is softening and the situation has reached a “worrisome” point. Daly, a voting member of the Federal Open Market Committee, indicated the recent slowdown in job growth strengthens the case for the central bank to cut interest rates in the near future[2][5].
- The U.S. labor market has shown signs of cooling, with slower job creation and falling demand for workers.
- Daly emphasized that further weakening is undesirable, warning, “once the labor market stumbles, it tends to fall further.”
- She expects the Fed will likely need to lower rates in the coming months to keep the economy on track[5].
Macroeconomic Uncertainty and Monetary Policy
The timing of potential rate cuts comes amid broader economic uncertainty caused by a U.S. government shutdown, which has delayed critical data releases—including payroll and inflation reports—leaving policymakers with less information to guide their decisions[1].
- September saw the Fed’s first rate cut of 2025, lowering the federal funds rate to a range of 4.00%-4.25%.
- The latest “dot plot” shows a split within the Fed, with some policymakers anticipating additional rate cuts this year and others urging caution over persistent inflation[1].
Artificial Intelligence Gives Labor Market a Twist
Daly also remarked that advances in
Chatgpt and other artificial intelligence technologies could potentially transform the U.S. economy, especially as companies adopt automation to adapt to the ongoing labor market slowdown[2].
- The adoption of AI is speeding up in response to the labor market cooling, as employers search for productivity gains.
- Daly cautioned that while technology may offer solutions, it is not a substitute for balanced monetary policy[2].
What’s Next for the Fed?
Market participants widely anticipate that the Federal Reserve will implement another 25 basis point rate cut at its next meeting in late October, as Dr. Daly and other officials balance inflation risks with growing concerns about employment[1][5].
The central bank’s path forward remains uncertain, with the labor market’s trajectory and the pace of AI adoption both critical factors in the Fed’s decision-making in the second half of 2025.
