With the U.S. economy and the labor market doing well but inflation too high, it is "appropriate" for the Federal Reserve to begin reducing policy accommodation next month, San Francisco Federal Reserve Bank President Mary Daly said Wednesday.

After that first rate rise, Daly said in remarks prepared for delivery to the Los Angeles World Affairs Council & Town Hall, "the timing and magnitude of future funds rate and balance sheet adjustments will depend on how the economy and the data evolve."

Among data she'll be watching, she said, is the transition from pandemic COVID-19 to an endemic state; how quickly disrupted supply chains recover; how rapidly workers sidelined by COVID-19 return to the workforce; and how quickly the fiscal support that bolstered the economy's recovery from the pandemic shutdowns fades.

"We will closely watch all of these developments and let the data determine the appropriate path of policy," Daly said.

Inflation by the Fed's preferred gauge, the personal consumption expenditures (PCE) price index, rose 5.75% last year, the highest in about 40 years and more than twice the Fed's 2% goal.

As the Fed prepares for what's widely expected to be a series of rate hikes and a sharp reduction in the Fed's balance sheet to quell that inflation trend, Daly's remarks stand out as less hawkish than some of her colleagues.

Her remarks Wednesday provided one key as to why: her confidence that the Fed's ability to communicate its inflation-fighting intentions and thus shape inflation expectations will keep an upward price spiral from taking hold as it did in the 1970s.

"Greater transparency and a strong commitment to achieving our goals assures Americans that periods of high inflation or unemployment will not last forever; that there is an end in sight.