• San Francisco Fed President Mary Daly suggests 50 basis points of cuts this year would better position the central bank.
  • Daly remains open to a potential rate cut at the December FOMC meeting, emphasizing risk-balancing decisions.
  • The Fed's recent 25-bps October cut revealed deep divisions, with one official favoring 50 bps and another opposing any cut.

Federal Reserve Bank of San Francisco President Mary Daly signaled Wednesday that she remains open to a rate cut in December, suggesting that a total of 50 basis points of easing this year would put the central bank in a stronger position to manage economic risks.

"We need to make decisions that balance the risks," Daly said, emphasizing the uncertainty among policymakers about the appropriate path for interest rates as they weigh persistent inflation concerns against signs of moderating economic growth. Her comments come just weeks after the Federal Open Market Committee delivered a 25-basis-point cut in October, the second reduction this year.

The October decision revealed significant divisions within the central bank, with one dissenting voter favoring a more aggressive 50-basis-point cut while another opposed any reduction at all. This split highlights the challenging environment Fed officials face as economic data sends mixed signals.

In a parallel move that adds to the accommodative tilt, the Fed also announced it will end its quantitative tightening program as of December 1st, effectively stopping the runoff of its balance sheet. This combination of rate cuts and the cessation of balance sheet normalization suggests the central bank is positioning for somewhat looser financial conditions heading into 2025.

Daly's remarks indicate the ongoing debate about the pace and scale of further easing is far from settled, particularly regarding the December policy meeting. The Fed president stressed that policymakers must remain "data-dependent" while acknowledging that both cutting too quickly and moving too slowly carry their own risks.

Market participants have been closely watching for signals about whether the Fed might accelerate its easing cycle amid moderating growth indicators. The suggestion of 50 basis points in total cuts for the year aligns with some market expectations but leaves room for interpretation depending on incoming economic data.

When reached for additional comment, a spokesperson for the San Francisco Fed declined to elaborate beyond Daly's published remarks. Other regional Fed presidents have offered varying perspectives in recent days, reflecting the lack of consensus that characterized the October meeting.

The Fed's delicate balancing act comes as inflation remains above the central bank's 2% target, though it has been slowly receding. Meanwhile, economic growth has shown signs of moderation, creating the complex risk environment that Daly referenced in her comments.

Correction: An earlier version of this article misstated the timing of the Fed's quantitative tightening conclusion. The program ends December 1st, not November 1st.