Labor Market Risks Outweigh Inflation Concerns: Fed Official Eyes December Rate Reduction

Mary Daly, President of the Federal Reserve Bank of San Francisco and a 2027 FOMC voting member, has made a compelling case for monetary easing next month. According to reporting from The Wall Street Journal, Daly expressed her conviction that the downside risks to employment conditions now exceed the threat of price pressures, making a compelling argument for the central bank to pivot toward accommodation.

The Fragile Employment Landscape

In recent comments, Daly emphasized growing vulnerabilities in the labor market that demand immediate policy attention. “Confidence in our ability to maintain employment stability is waning,” she noted during a Monday interview. The job market has reached a level of instability where the risk profile has shifted dramatically—sudden adverse shifts pose a far greater challenge to manage than gradual policy adjustments can address. Her assessment signals that current labor dynamics carry an element of unpredictability that monetary authorities cannot simply forecast or prevent through standard mechanisms.

This perspective challenges the conventional wisdom that has dominated policy discussions for much of this year. Rather than viewing employment as resilient and inflation as the primary threat, Daly repositioned the risk calculus entirely.

Inflation: A Diminishing Threat

The Fed official’s outlook on price pressures has notably softened. Tariff-related cost escalations have proven significantly less disruptive than initially anticipated when the year began. The inflation trajectory no longer warrants the same defensive posture that guided earlier policy decisions. This shift reduces the traditional counterargument against rate reductions and strengthens the case for proactive cuts.

Strategic Significance for December

Daly’s public positioning carries considerable weight within the policy establishment. Though she holds no voting rights on monetary decisions currently, her rare departures from consensus views typically signal meaningful shifts in institutional thinking. Her alignment with Chairman Powell on this matter—or conversely, her apparent independent analysis—could prove decisive at the December 9-10 meeting, where the rate-setting committee faces a critical juncture in determining whether to proceed with cuts or maintain the current restrictive stance.

The resolution of this internal debate will likely hinge on perspectives like Daly’s, which prioritize labor market stability over abstract inflation concerns.