San Francisco Federal Reserve Bank President Mary Daly voiced her support for the central bank's decision to hold interest rates steady at its July meeting, but cautioned that elevated inflation could represent a more systemic threat, potentially requiring more aggressive action from policymakers.

"I fully support the decision to hold rates steady in July," Daly stated at an event in Tokyo on Thursday. She outlined two potential scenarios for inflation: one where price pressures begin to cool, and another where they continue to rise, each demanding a distinct policy response. "The solution is to closely monitor incoming data and be fully prepared to act," she said.

The Fed voted last week to maintain the current interest rate, though three dissenting policymakers advocated for a quarter-point increase. Daly, who does not have a vote on the Federal Open Market Committee this year, still participates in policy discussions. The Fed remains divided on the risks posed by inflation and the appropriate measures to address them.

While officials like Daly suggest that shocks from tariffs, surging oil prices, and the artificial intelligence boom might be isolated and eventually fade, others point to evidence that inflation from these areas has already spread to other sectors of the economy.