U.S. non-farm payroll data unexpectedly weakened, with a decline of 92,000 jobs in February and the unemployment rate rising to 4.4%, significantly below market expectations. San Francisco Federal Reserve President Mary Daly stated on Friday that this further deepened her concerns about the labor market. However, she does not believe this means the Federal Reserve should cut interest rates immediately, as persistently high inflation, coupled with rising oil prices driven by the Iran conflict, presents "two-sided risks."
She told media that the disappointing February employment report undermines the narrative that "the U.S. labor market is stabilizing."
"Previous hopes that the labor market was stabilizing may have been overly optimistic. We must indeed continue to monitor the labor market closely."
Nevertheless, Daly also emphasized that policymakers should not overinterpret any single month's data. She pointed out that certain details within the employment report make the data itself difficult to interpret clearly. She stated:
"There is another option, which is also a policy option: to keep interest rates unchanged while we gather more information."
Daly also noted that an employment market characterized by low hiring and low firing is susceptible to changes. Currently, both of the Fed's primary objectives—stabilizing employment and curbing inflation—are at risk. She highlighted that inflation has remained above the Fed's 2% target for five consecutive years. The impact of rising oil prices depends on how long the increase persists, while the level of wage growth observed so far is not considered excessive.
She said:
"The real concern is that the labor market may be weaker than what we had previously observed. In fact, I have been worried about this since last summer. When the labor market is unstable, it is difficult to raise interest rates." "I certainly don't think we should be raising rates now, but a real question is whether we should convene a meeting immediately to take urgent action on the labor market, or whether we should wait and analyze this data more carefully."
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