San Francisco Fed President Daly: Two interest rate cuts this year still "possible", impact of tariffs on inflation may be manageable

San Francisco Fed Chair Mary Daly said she still believes that there could be two interest rate cuts this year and that the impact of tariffs on prices may be smaller than expected. Daly stated that some companies are negotiating to share the cost of tariffs, so they do not have to pass on most of the costs to the end consumer. "By the time they pass on the costs to consumers, they find that the portion that needs to be passed on has decreased, and some costs can be deducted from profits," Daly said during an online discussion hosted by MNI on Thursday. "This may not lead to a significant increase in consumer prices, as businesses have found ways to adjust." Policymakers have been keeping borrowing costs stable this year, but there have been differing opinions among officials on the extent of interest rate cuts expected in the second half of 2025. Minutes from the June policy meeting of the Federal Reserve published on Wednesday showed that the differences arose from officials' varying views on how tariffs would affect inflation. Most participants noted that tariffs could have a longer-lasting impact, but a few participants also indicated that they expected tariffs to result in a one-time price increase rather than affecting long-term inflation expectations. The San Francisco Fed Chair said the U.S. economy is in good shape, with consumer spending slowing but not weakening. She said the inflation rate is moving toward the Fed's target of 2%. Daly said, "I think two interest rate cuts are a possible outcome, but everyone's forecasts have uncertainties." St. Louis Fed Chair Alberto Moselem earlier on Thursday said it was too early to determine whether the inflation effects of tariffs would lead to a one-time price increase or a more lasting impact. Moselem said, "It takes time to resolve the tariff issue," and that "there is a scenario where, in the fourth quarter of this year or the first or second quarter of next year, tariffs could still be affecting the economy." He said he expects the impact of tariffs on prices to become more evident in data starting in June, July, August, or September. He said, "I think, over time, I will have a clearer picture of the overall impact of tariffs." Federal Reserve officials will hold a meeting on July 29-30. According to pricing on futures contracts, investors currently expect the central bank to cut rates in September.