US Job Market Is Slowing, Can’t Let It Slow Too Much, Fed’s Daly Says

(Bloomberg) -- Federal Reserve Bank of San Francisco President Mary Daly said the labor market is softening and indicated the US central bank should begin cutting interest rates in coming quarters, but stopped short of concluding the labor market has begun seriously weakening.

“Policy adjustments will be necessary in the coming quarters,” Daly said Monday in a moderated discussion co-hosted by the Hawaii Executive Collaborative. “We have now confirmed that the labor market is slowing, and it is extremely important that we not let it slow so much that it tips itself into a downturn.”

How much the Fed will have to cut and when, she added, will “depend a lot on the incoming information.”

Daly emphasized she still sees strength in the jobs market. Companies, she said, have slowed their hiring of new workers, but most are not cutting jobs.

“We have a reasonably solid labor market,” Daly said. “Underneath the hood of the labor market report, there’s a little more room for confidence — confidence that we’re slowing but not falling off a cliff.”

Her comments follow a worse-than-forecast US jobs report Friday that has spurred recession concerns and helped drive a global stocks rout. They put her in line with other Fed officials who’ve spoken since the release of the July data and who cautioned against reading too much into one employment report.

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Daly pointed to a decline in mortgage rates after the jobs report as proof the Fed is communicating effectively and policy is working.

“Now, markets can move in one direction or another too much, but I think the important thing is that the reaction function — how we will balance the two goals we have — is very clear, and interest rates are already adjusting,” she said.

Two days prior to the new jobs data, policymakers kept interest rates unchanged at a more than two-decade high, yet signaled they were closer to lowering borrowing costs. Chair Jerome Powell said a rate cut could be appropriate as soon as the central bank’s September meeting.

A number of economists — including those from Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. — now expect half-point rate cuts at both the September and November meetings.

(Updates with comments on market reaction to jobs report starting in 7th paragraph.)