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Federal Reserve Bank of San Francisco President Mary Daly has reaffirmed her support for the U.S. Federal Reserve’s decision to keep interest rates unchanged at its July policy meeting, saying policymakers need additional economic data before determining the next course of action on inflation.
Speaking at an economics conference in Tokyo on Wednesday, Daly said the Federal Reserve was right to maintain its current policy stance while assessing whether recent inflationary pressures are temporary supply-driven shocks or signs of more persistent price increases.
Fed to remain data-driven ahead of September meeting
According to Daly, the central bank must continue monitoring incoming economic indicators before the Federal Open Market Committee (FOMC) convenes for its next monetary policy meeting in September.
She noted that policymakers still need more evidence to determine the underlying drivers of inflation and whether additional monetary tightening will be required to restore inflation to the Federal Reserve’s long-term target of 2 per cent.
Daly stressed that while the Fed should remain patient, it must also be prepared to respond decisively if economic conditions warrant further action.
“We have a lot of information we need to collect,” she said, adding that the central bank should remain vigilant as new economic data becomes available.
Policymakers remain divided on inflation outlook
At its July meeting, the FOMC voted to retain the federal funds target range at between 3.5 per cent and 3.75 per cent, reflecting continued caution over elevated inflation.
However, the decision was not unanimous, with three policymakers voting in favour of raising interest rates to further contain inflationary pressures.
In recent days, several Federal Reserve officials have also indicated that future interest rate increases remain a possibility if inflation fails to return to target.
Although Daly is not currently a voting member of the FOMC, she acknowledged concerns about the potential impact of renewed inflation on public confidence and economic stability.
She noted that if inflationary momentum begins to strengthen again, the Federal Reserve may need to adopt a more aggressive policy response to safeguard price stability.
Supply-side pressures may ease over time
Despite ongoing inflation concerns, Daly expressed optimism that many of the supply-side shocks affecting the U.S. economy are unlikely to have a lasting impact on inflation.
She explained that businesses currently have limited ability to pass rising input costs on to consumers, reducing the risk of sustained price increases across the economy.
Daly also pointed to energy prices as an important factor shaping inflation expectations, noting that consumers remain particularly sensitive to fluctuations in oil prices.
According to her, an easing of geopolitical tensions in the Middle East could help moderate energy costs and reduce one of the key contributors to recent inflationary pressures.
Her comments reinforce the Federal Reserve’s commitment to a data-driven monetary policy approach, balancing inflation control with broader financial stability objectives while closely monitoring evolving economic conditions and global risks.
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