Federal Reserve Bank of San Francisco President Mary Daly said a disappointing February employment report undermines the notion that the US labour market was stabilising.
“The hopes that the labour market was steadying, maybe that was too much, and we really have to keep our eye on the labor market,” Daly said on Friday in an interview on CNBC.
Daly emphasised, however, that policymakers shouldn’t put too much weight on any one month of data and noted that details within the report make it difficult to interpret.
Her remarks came just after fresh data showed US employers unexpectedly cut jobs in February, though the results partly reflected disruptive winter weather and a drop in health care employment due to strike activity. Non-farm payrolls decreased by 92,000, according to the Bureau of Labor Statistics report, and the unemployment rate ticked up to 4.4%.
Daly said the Fed continues to have risks to both sides of its mandate, pointing to inflation that has been above the US central bank’s 2% target for five years.
“The piece I’m worried about is the labor market maybe a little weaker than we have seen so far, but I’ve been worried about that since last summer,” Daly said.
The Fed kept interest rates unchanged at its January meeting and investors still expect it to do so again when officials gather later this month. That follows three rate cuts at the end of 2025 as policymakers moved to bolster tepid hiring in the labor market.
Chicago Fed President Austan Goolsbee, speaking later on Bloomberg TV, called the jobs report a “tough miss.” He added that he was hopeful inflation would resume its progress towards 2%, allowing the Fed to resume rate cuts by the end of the year, though he called recent inflation data “disturbingly high.”
“As we get more uncertainties, I think the time at which it makes sense to act keeps getting pushed back,” he said.
Meanwhile Federal Reserve Governor Christopher Waller on Friday said he doesn’t expect the Iran war to have a sustained impact on inflation.
While consumers are likely to experience sticker shock as gas prices rise, policymakers will look through any one-off increases, he said.
“For us thinking about policy going forward, this is unlikely to cause sustained inflation,” Waller said on Friday in an interview on Bloomberg TV. “That’s one reason we don’t look at energy prices. When we look at core, core is a better predictor of future inflation,” he added, referring to a measure of inflation that strips out volatile energy and food prices.
“It’s kind of very odd to think about the Fed may be changing rates six months from now based on this,” he said.
Waller dissented from the Fed’s decision in January to leave its benchmark policy rate unchanged, saying he preferred a quarter-point reduction because of signs of continued softness in the labour market. The government’s employment report for January subsequently came in much better than expected.
Fed policymakers are expected to hold rates steady for a second consecutive time when they meet March 17-18. Officials have signalled they can be patient in considering additional rate cuts, given signs of stabilisation in the labour market and inflation that remains above their 2% goal.
The Fed cut its benchmark rate three straight times at the end of 2025, in part to respond to signs of weakness in the labour market.
Interest rate swaps, which investors use to bet on Fed policy, show traders are pricing in about 35 basis points of rate cuts by year-end, compared with about 60 basis points at the end of last week.