Federal Reserve's Daly downplays hot economic data: still supports September action, reasonable to cut rates about twice this year

According to the Zhitong Finance APP, San Francisco Federal Reserve President Mary Daly stated in an interview after hearing economic reports indicating that last month's retail sales exceeded expectations and PPI unexpectedly surged, that she still supports starting to ease monetary policy next month. Overall, Daly believes that two rate cuts this year are a reasonable expectation. The U.S. PPI unexpectedly accelerated in July, marking the largest increase in three years, indicating that businesses are passing on higher import costs associated with tariffs. The July PPI rose significantly by 0.9% month-on-month and 3.3% year-on-year, both far exceeding market expectations. PPI typically reacts to price change trends ahead of CPI, which also means that the warming trend of PPI, as well as the three inflation measures of CPI and PCE, is far from over. After all, Trump's tariff policy will inevitably bring about a significantly greater inflationary effect than now. Meanwhile, U.S. retail growth in July exceeded expectations, with strong growth in auto sales and large online promotional events driving a month-on-month increase in U.S. retail sales, indicating that American consumers have increased spending in recent months, boosting market optimism about U.S. economic growth. Daly stated on Friday: "The labor market is gradually slowing, the economy is slowing but has not yet stagnated, and inflation rates remain above the Federal Reserve's target level. This situation suggests that there may be a few rate cuts at some point this year. Of course, we will wait for the data results; perhaps the number of rate cuts will be fewer, or perhaps more, but overall, I think two rate cuts are a reasonable expectation." She said: "I don't want to be in a situation where we delay making a clear statement out of excessive concern that inflation might re-emerge or persist, thereby failing to provide the necessary support for the labor market." However, Daly opposed the necessity of a one-time 50 basis point rate cut at the Federal Reserve's September meeting. In an interview on Wednesday, Daly stated: "To me, 50 basis points sounds like we are seeing an emergency situation—I worry it will send an emergency signal, and I do not believe the labor market has such strong momentum; I do not see a reason to 'catch up.'"