Federal Reserve (Fed) Bank of San Francisco President Mary Daly said interest rates are currently restraining the economy, but it may take “more time” to return inflation to the central bank’s goal.

“We are restrictive, but it might take more time to just bring inflation down,” Daly said Thursday during a moderated discussion at George Mason University’s Mercatus Center, echoing remarks Fed Chair Jerome Powell made on April 16.

Daly said recent data - which showed price pressures picked back up early this year - underscores why officials can’t declare victory until they’re confident inflation is contained.

“There’s considerable now uncertainty about what the next few months of inflation will be and what we should do in response,” she said.

The remarks highlighted Fed officials’ willingness to hold the central bank’s benchmark interest rate steady until they are more confident inflation will continue to ease toward their 2% target.

Prices, as measured by the Fed’s preferred inflation index, rose 2.7% in March from a year earlier. That was stronger growth than economists expected and a pickup from the prior three months. Fed officials have held rates in a range of 5.25% to 5.5%, a 23-year high, since last July. Powell signalled last week that interest-rate cuts remain on the table, but the timing is uncertain.

Investors have dialled back expectations for rate cuts this year following a series of hotter-than-expected inflation readings, and now see between one and two reductions in 2024.

Daly said she doesn’t see the need for Fed officials to push down the economy to ease inflation further. If the labour market began to weaken then officials could consider lowering rates, she said, though recent softening in the data is normal.

“It’s far too early to declare that the labour market is fragile or faltering,” she said.

  - Bloomberg