San Francisco Fed President Mary Daly, a 2027 FOMC voting member, said on Friday that she expects the Fed will need to raise interest rates further, though like other policymakers she believes the pace and timing of hikes remain uncertain.

Daly said: "My expectation is that we will have to tighten policy further. Exactly when and by how much remains to be decided, because we have to consider all the relevant factors." She said: "More tightening may be necessary, and of course... I am prepared to do that if the economic situation requires it."

Daly's remarks continued the cautious tone struck by Fed officials recently: on one hand acknowledging that policy may need to be tightened further, while on the other emphasizing that subsequent decisions will depend on economic data.

On the same day Daly made those comments, the U.S. Bureau of Labor Statistics reported that the U.S. economy added 165,000 jobs in October and the unemployment rate fell to 4.1%. The unemployment rate is the labor market variable Fed officials watch most closely. These figures far exceeded Wall Street expectations. The number of new jobs was nearly three times the consensus forecast in a Dow Jones survey.

Daly called the report "good news for American workers," but also noted that inflation is putting pressure on household finances. The data also showed that average hourly earnings rose 3.1% year-over-year in October, while inflation measured by the Consumer Price Index (CPI) stood at 3.7% in September.

"They see they can find work, so they keep spending. They have not dropped out of the labor force, but they are still spinning their wheels under the pressure of high inflation," she said. "High inflation has persisted for too long, nearly six years, and we are really starting to feel that burden spread everywhere."

Daly said she is generally not worried about economic growth, but is concerned about the persistence of inflation. She said: "The job market remains stable and solid, but it is not booming. You see real wages falling, because those wages have not really kept up with inflation." She said: "I think this is the key point. On the employment side it is good news, but it is less clear whether Americans will make real progress in the labor market."

The rate-setting Federal Open Market Committee (FOMC) raised the Fed's benchmark overnight borrowing rate by 25 basis points in September to a target range of 3.75%-4%. However, the committee did not follow up with another rate hike last week, saying it preferred to wait for "more information" before deciding its next move.

Daly will participate in committee votes next year and said she still favors a gradual approach. Richmond Fed President Thomas Barkin said on Thursday that he also expects higher rates in the future, but is unsure of the timeline. Daly said: "I very much support, and fully believe, that taking action in September was the right thing. I also think it was good to hold steady at the last meeting, because the world is full of uncertainty."