Mary Daly indicated that two rate cuts in 2025 remain a plausible expectation. She has maintained her position since the previous year and suggests a careful approach to monetary policy is needed.
Daly emphasised the importance of allowing industries time to adapt to tariffs. Current policy appears stable, and she advocates for patience as there is insufficient information to alter her outlook. She noted a trend of cautious optimism expressed by businesses in recent discussions.
Steady Outlook Amid Market Speculation
Daly’s statement reflects continuity rather than change. Her reference to two potential cuts in 2025 implies that no abrupt adjustments are likely for some time, and that we should be careful not to overinterpret near-term indicators. Her comments are not shaped by immediate market pressures, but rather by the longer-term objective of anchoring expectations without pre-emptive moves.
Allowing sectors time to absorb tariff impacts underlines the view that rate policy must not jump ahead of economic absorption capacities. By doing so, she indirectly warned against making assumptions based on isolated shifts in pricing or supply chain realignments. For trading activity tied to rate futures, this means forward contracts are unlikely to receive sudden catalysts that reprice the mid-range outlook.
Her observation of cautious optimism among firms isn’t a pivot, but rather a small shift in sentiment indicators. It suggests mild improvement, but not enough to consider an abrupt shift in direction. Businesses may be seeing fewer constraints, but this sentiment needs reinforcement from broader datasets such as payroll gains or core inflation moderation before any policy changes can be confidently backed.
We note that the decision-making still leans on broader lagged effects. Daly’s tone makes it clear that reactivity is not on the table, and the burden of proof lies with incoming data rather than headlines. In forward rate modelling, this implies low volatility around medium-term swaps and an environment where implied yield curves remain compressed.
Low Volatility In Rate Sensitive Instruments
For short-dated options, the probability of heightened moves narrows unless something considerably outside of current data trends arises. Her references to “insufficient information” signal a threshold not yet crossed. This implies any deviation from the current base scenario must be led by clear statistical deviations—not commentary.
As positions are built around expected paths, traders might look at her steady stance and see an opportunity to reweight exposures more toward the latter half of the curve. Her language does not invite timing speculation in Q2 or Q3, which may put pressure on highly convex structures near-term.
We can also infer that volatility among inflation-linked instruments may dampen if the policy path stays slow to respond. There’s limited room for rate reactions unless consumer data meaningfully diverge.
All in all, while some sentiment has turned a shade more hopeful, the core financial system commitments remain unchanged. The cost of capital is holding steady for now, and those trading instruments tied to the overnight rate may need to manage recalibration expectations—not acceleration.
