Mary C. Daly, President of the Federal Reserve Bank of San Francisco, delivered a pointed message at an international conference this week: the Fed is walking a tightrope, and leaning too far in either direction could be costly.

Speaking on July 2 at the 5th Banco de España-CEMFI-UIMP Conference on the Spanish Economy in Santander, Spain, Daly laid out the central tension gripping US monetary policy. Act too quickly on rate cuts and you risk letting inflation settle above the Fed’s 2% target. Wait too long and you choke off economic growth, with real consequences for workers and households.

The balancing act at the heart of the Fed

Back on June 4, she described the Fed’s current policy stance as being “in a good place,” signaling readiness to adjust interest rates based on incoming economic data.

In interviews from May, Daly also took aim at an ongoing media obsession with parsing the exact language of FOMC statements. She emphasized that the committee’s actual decisions carry far more weight than the specific words chosen to describe them.

The Federal Open Market Committee’s internal discussions reportedly caution against both premature easing, which could prevent inflation from reaching the 2% target, and excessive caution, which might weaken economic growth and employment.

Geopolitics add another layer of complexity

Daly didn’t limit her concerns to domestic economic data. She flagged external risks that could throw a wrench into the Fed’s carefully calibrated approach, specifically pointing to oil price shocks stemming from geopolitical tensions with Iran.

Daly, who became President of the San Francisco Fed in 2018, is a voting member of the FOMC in certain years.