Federal Reserve Bank of San Francisco President Mary Daly recently signaled that the Fed is likely to lower interest rates in the coming months due to a slowdown in the U.S. job market. While interest rates have remained steady throughout most of 2025, there are increasing signs that labor market conditions have softened, and policymakers are starting to respond to these changes.

The current federal funds rate has been held between 4.25% and 4.50% as the central bank carefully monitors inflation and economic growth. Over the past several months, the labor market has shown signs of losing momentum, with fewer job openings and increasing difficulty for workers to find new positions. This slower job growth, combined with easing inflation pressures, has contributed to growing expectations of a rate cut before the end of the year.

Fed officials are divided on the best path forward. Some believe it is necessary to keep rates higher for longer to guard against renewed inflation, especially with ongoing concerns about tariffs and their potential impact on prices. Others, like Daly, argue that easing rates would provide necessary support for an economy that is beginning to lose steam, particularly as job growth slows and economic cracks start to appear.

Many market watchers now expect the Fed to introduce one or two modest rate cuts by the end of 2025. Some forecasts anticipate this could begin as early as September, depending on incoming economic data. Lower rates would aim to support continued hiring, bolster consumer and business confidence, and potentially temper the effects of slower growth.

As always, the timing and scale of any Fed action will depend on developments in inflation, employment, and broader financial conditions. Investors and analysts will be closely watching upcoming economic reports for further guidance on the central bank’s next move.