Fed's Daly signals concern over labor market slowdown

San Francisco Fed President Mary Daly raised alarms overnight about the slowing labor market, underscoring the critical need to ensure that this deceleration does not morph into a downturn.

Speaking at a forum, Daly confirmed that the labor market is indeed experiencing a slowdown. She highlighted the importance of closely monitoring this trend to determine its implications for the broader economy.

Daly expressed her concern that it is too early to ascertain whether the labor market is decelerating to a sustainable pace that would allow continued economic growth, or if it is verging on a point of significant weakness.

Looking ahead, Daly mentioned that she anticipates interest rates will eventually need to come down to maintain a balance between full employment and price stability. However, she refrained from specifying the timing or magnitude of these potential rate cuts, noting that more data needs to be reviewed before the next Federal Reserve policy meeting in September.

RBA holds rates steady, signals no cuts in near term

The Reserve Bank of Australia (RBA) has decided to keep interest rates at a 12-year high of 4.35%, effectively ruling out the possibility of a rate cut within the next six months as it waits for inflation to subside.

Despite the hawkish rate hold by the RBA, the Australian dollar did not receive any special support. Governor Michele Bullock made it clear that a rate cut in the near term is not aligned with the board’s current thinking.

Bullock's cautious stance is backed by the RBA’s latest economic projections, which foresee headline inflation rising again after mid-2025. Additionally, underlying inflation is expected to return to the 2-3% target range by late 2025 and approach the midpoint in 2026. This reflects a slower return to target than what was forecasted in May, necessitating a wait-and-see approach.