Fed policy should stay restrictive until there's more inflation progress: Daly

(Reuters) -San Francisco Federal Reserve Bank President Mary Daly on Tuesday said that while there is no reason to be discouraged about bumpy and sometimes imperceptible progress toward 2% inflation, the U.S. central bank should keep short-term borrowing costs where they are until the progress is more visible.

"Policy needs to remain restrictive until ... I see that we are really continuing to make progress on inflation," she told a community banking conference hosted by the American Bankers Association in Phoenix, Arizona. 

With the economy and labor market solid, "we want to be, in my judgment, careful ... before we make the next adjustment" to ensure there is enough downward pressure on inflation, she said.

The U.S. central bank left its policy rate in the 4.25%-4.50% range at its meeting last month. It is expected to keep it there for another couple of meetings as policymakers watch the economic data and begin to assess how the Trump administration's tariff, immigration, tax and other policies may affect inflation and unemployment. 

Those policies, Daly said, could boost or slow economic growth, labor supply and inflation, depending on the details and their "scope, magnitude, and timing."

So far, she said, not enough is known for the Fed to react. "We have to take our time," she said, and monetary policy is in a "very good place" to react powerfully as needed.

Inflation as measured by 12-month change in the personal consumption expenditures price index, which the Fed targets at 2%, ended last year at 2.6%, with some analysts estimating it may have fallen to 2.4% last month.

The unemployment rate was 4% in January, below what most Fed officials feel is sustainable in the longer run. 

Daly's view that rates ought to stay where they are appeared to be in sync with that of one of the Fed's most hawkish policymakers, Fed Governor Michelle Bowman, who told the same group on Monday that she wants "to gain greater confidence" that inflation will continue to drop before cutting interest rates any further. 

The deluge of executive orders and policy pronouncements from the Trump administration is creating a lot of uncertainty, Daly said.

"Ultimately we need more information to find out what we're really going to do," she said. "And that's what I'll be doing: keeping a watchful eye and making sure that I'm careful enough ... in making that assessment (so) that we don't urgently get to an answer that we only regret."

(Reporting by Ann SaphirEditing by Marguerita Choy)