A top Federal Reserve official has warned it is far too early for the US central bank to “declare victory” in its fight against elevated inflation after new data showed a reprieve in consumer price pressures.

In an interview with the Financial Times, Mary Daly, president of the San Francisco branch of the Fed, did not rule out a third consecutive 0.75 percentage point rate rise at the central bank’s next policy meeting in September, although she signalled her initial support for the Fed to slow the pace of its interest rate increases.

Her comments come amid intense debate about how quickly the Fed will tighten monetary policy in the second half of 2022, after raising rates at the fastest pace since the early 1980s in the first half of this year. The federal funds rate, which hovered near zero in March, is now fixed between 2.25 per cent to 2.50 per cent.

“There’s good news on the month-to-month data that consumers and business are getting some relief, but inflation remains far too high and not near our price stability goal,” Daly said on Wednesday, after the latest consumer price index report showed no increase between June and July and a slower annual inflation rate of 8.5 per cent.

Still, “core” prices — which strip out volatile items such as energy and food — climbed higher, led by an uptick in services inflation that Daly said showed little sign of moderating.

“This is why we don’t want to declare victory on inflation coming down,” she said. “We’re not near done yet.”

Daly on Wednesday maintained that rates should rise to just under 3.5 per cent by the end of the year, a level that constrains business and consumer activity. But she cautioned against moving too aggressively to damp demand.

“There is a lot of uncertainty, so leaping ahead with great confidence that [a 0.75 percentage point rate rise] is what we need and being prescriptive would not be optimal policy.” She spelt out why a half-percentage point rate rise in September is her “baseline”.

Daly pointed out that the Fed has already tightened monetary policy significantly and the full effects of those actions have not yet trickled through the economy. Other global central banks are also rapidly raising interest rates in a “synchronised” way to an extent that has dramatically tightened global financial conditions, she added, while growth prospects across advanced and emerging economies have soured.

“We have a lot of work to do. I just don’t want to do it so reactively that we find ourselves spoiling the labour market,” Daly said. She pushed back on rising investor expectations that the Fed will abruptly turn to cutting rates next year. “If we tip the economy over and [people] lose jobs, then we haven’t really made them better off.”

So far the labour market has registered strong momentum, with the US adding 528,000 jobs in July. That pushed the unemployment rate down to its pre-coronavirus pandemic low of 3.5 per cent.

Job vacancies have begun to drop from recent highs and jobless claims have risen from very low levels, but Daly affirmed she does not expect the unemployment rate to rise too far beyond 4 per cent as the Fed tackles soaring prices. Some economists have warned that the jobless rate may need to rise in excess of 5 per cent if the central bank is to be successful in taming inflation.

When the Fed gathers in September, officials will have another month’s jobs figures and inflation data. Daly said she would be watching those reports closely in order to validate whether it is appropriate to shift down to a slower pace of policy tightening.

“What we need is not a good report on inflation. It’s encouraging, but it’s not evidence of the goal we really want,” she said. Instead, Daly is looking for the data in the aggregate to affirm the Fed is “on a path to bring inflation down substantially and achieve our price stability target”.

This story has been amended since first publication to correct the number of US jobs added in July to 528,000.