The latest inflation data shows that it’s still too premature to know when it will be the right time for the Federal Reserve to lower interest rates.

Federal Reserve Bank of San Francisco President Mary Daly spoke to CNBC on Friday soon after the Commerce Department released its latest update on consumer spending and the central bank's approach to inflation, Bloomberg reported.

"It's really challenging to look anywhere and not see monetary policy working," Daly said on CNBC. "We have growth slowing, spending slowing, the labor market slowing, inflation coming down — that's how policy works."

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The core personal consumption expenditures price index, which excludes volatile food and energy data, increased 0.1% in May, marking the smallest rise this year.

Daly said the Fed will remain data dependent, and pointed to various scenarios that could take place in the coming months, such as the Fed holding rates higher for longer if inflation declines slower than expected, according to Bloomberg.

But if inflation recedes at the pace it did at the end of 2024, then the Fed would modify its policy accordingly, she said.

"It's really too early to tell,” she said.

The Fed is keeping its key interest rate between 5.25% and 5.50% as it waits for inflation to fall to 2%, plans to cut rates only once this year.

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