The Federal Reserve's Daly warns of vulnerability in the labor market, says it may be necessary to cut interest rates one to two more times this year.

On Friday local time, Mary Daly, president of the San Francisco Fed, stated that based on the fragility of the labor market, it may be necessary to cut interest rates one or two more times. Daly expressed her support for the Fed's decision last week to keep the federal funds rate at 3.50%-3.75%. However, in an interview, she said, "I think there is a case to be made to act further and lower rates." Daly pointed out that in order to lower borrowing costs, "you have to be very confident, truly confident, that the impact of tariffs will gradually fade...and inflation is indeed on a downward trajectory." She added that you also "have to truly worry about the challenges facing the labor market being more severe than what we currently see in the data." Overall, she believes the risks between price stability and full employment are "relatively balanced," although fragility is pointing towards the employment side of the Fed's dual mandate. She believes that if businesses see a weakening demand, the currently lackluster labor market could quickly shift from hiring to layoffs. Unlike some of her colleagues, Daly stated, "I worry more about the labor market than inflation." Daly also focuses on another key leading indicator of the labor market: parents reporting difficulty for their children in finding jobs. This phenomenon is also evident in recent data, with data showing higher unemployment rates for recent college graduates compared to the general workforce. "This is a signal of the 'instability' in the labor market," she said. "Given what I'm seeing in the economy right now, I lean towards more rate cuts: whether it's one or two, it's hard to say at the moment." This year, Daly is not a voting member of the Federal Open Market Committee (FOMC) with policy-setting authority.