Investing.com -- The Federal Reserve will need to bring down interest rates in order to protect the US labor market, but the size of the cut will likely be influenced by incoming economic data, San Francisco Fed President Mary Daly told Reuters.
In an interview with the news agency on Wednesday, Daly flagged that the "real rate of interest" is rising in a "slowing" economy, noting that this is a "basic recipe for over-tightening."
She argued that if the Fed's monetary policy became "overly tight" it could lead to "additional slowing" in the US employment picture.
"[T]o my mind, that would be unwelcome," she said, according to Reuters.
The comments come as the Fed gears up to hold its next two-day policy gathering on Sept. 17-18. Investors widely expect the central bank to slash borrowing costs -- currently at a 23-year high of 5.25% to 5.5% -- down by 25 basis points.
Policymakers have held rates at this elevated level for more than a year, after having rolled out a series of hikes throughout 2022 and 2023 in a bid to corral red-hot inflation.
Attention is now focused on a raft of labor market data this week, including the all-important August nonfarm payrolls report. Recent figures have pointed to a gradual softening in the American employment market, with job openings -- a proxy for labor demand -- in particular falling to a 3-1/2 year low in July.
However, Daly said that job openings data shows that the labor market is not weak, but in balance, adding that "it's hard to really find evidence that it's even faltering."
Analysts have said that any indications of an intensifying jobs market slowdown could persuade the Fed to introduce larger rate cuts.