Fed's Daly sees progress on inflation, expects two rate cuts in 2025

San Francisco Fed President Mary Daly stated the U.S. is making sustainable progress toward the Fed's 2% inflation target, noting consumer spending is gradually cooling rather than sharply declining. Daly expressed concern about tariffs only if their impact extends beyond imports, observing that importers are currently absorbing costs, which may limit significant consumer price increases. She projects two interest rate cuts are likely in 2025.

Analysis

Federal Reserve Bank of San Francisco President Mary Daly has provided a dovish outlook, signaling confidence that inflation is on a sustainable path toward the central bank's 2% target. Her commentary supports a soft-landing narrative, citing that consumer spending is undergoing a gradual cooling rather than a sharp contraction. Daly has mitigated immediate concerns regarding tariffs by observing that importers and retailers are currently absorbing a portion of these costs, thereby limiting the pass-through effect on consumer prices. Critically, she provided explicit forward guidance by projecting two interest rate cuts as a likely outcome for 2025, reinforcing the market's expectation of future monetary policy easing. This combination of moderating inflation, controlled economic slowdown, and a clear signal for rate reductions points to a macroeconomic environment that is becoming increasingly favorable for risk assets.

Key Decisions for Investors

• The projection of two rate cuts in 2025 from a key Fed official reinforces a dovish policy stance, suggesting investors may want to re-evaluate positions in interest-rate sensitive assets, such as fixed income and growth stocks.
• Investors should monitor consumer spending data and corporate profit margins in the retail sector; sustained but moderate spending would validate Daly’s soft-landing view, while margin compression could signal future price hikes or economic weakness.
• The commentary on tariffs suggests a contained risk for now, but this remains a key variable to watch, as any change in corporate behavior to pass on costs could reignite inflation and complicate the Fed's path to rate cuts.