The San Francisco Federal Reserve Bank's President, Mary Daly, stated on Friday that recent inflation data has caused her to lose confidence in her initial expectation of two interest rate cuts this year. Daly emphasized her focus on inflation trends, with the latest data pointing to a notable increase in underlying inflation in February and rising consumer inflation expectations.

Daly acknowledged the possibility of economic growth slowing down, a labor market cooling off, and further progress on inflation before eventually considering rate cuts due to current restrictive monetary policy. However, she expressed concern that the lack of significant progress on inflation could lead the economy astray from this anticipated course.

While Daly considers true stagflation - a combination of stagnant economic growth and high inflation - to be an unlikely scenario, she does foresee other potential risks. She highlighted the possibility of inflation remaining stubbornly high even as the labor market continues to perform well, warranting a careful approach to adjusting interest rates.

Daly also raised concerns about recent uncertainties impacting business and consumer sentiment, potentially leading to changes in hiring plans and a greater-than-desired economic slowdown. These challenges could necessitate a different approach in addressing the economic landscape in the future.