1 00:00:02,360 --> 00:00:07,040 Speaker 1: Bloomberg Audio Studios, podcasts, Radio News. 2 00:00:06,920 --> 00:00:10,200 Speaker 2: San Francisco FED. President Mary Daily, President Dady, welcome back 3 00:00:10,240 --> 00:00:11,840 Speaker 2: to the program. It's good to catch up with you. 4 00:00:11,920 --> 00:00:13,399 Speaker 2: I want to start with this data and maybe we 5 00:00:13,440 --> 00:00:15,880 Speaker 2: can spend some time on a palace intrigue later on 6 00:00:16,200 --> 00:00:20,520 Speaker 2: jobless claims, initial claims lower than expected, continuing claims higher 7 00:00:20,560 --> 00:00:23,120 Speaker 2: than expected, and creeping higher over the past few months. 8 00:00:23,320 --> 00:00:26,040 Speaker 2: From your advantage point, President DAii, how much weight would 9 00:00:26,040 --> 00:00:28,160 Speaker 2: you put on one versus the other and what's the 10 00:00:28,240 --> 00:00:31,040 Speaker 2: labor market picture look like in your point of view? 11 00:00:31,080 --> 00:00:35,280 Speaker 3: Your opinion, Well, the labor market shaping up to be solid, 12 00:00:35,360 --> 00:00:38,600 Speaker 3: and the data today confirmed that. Now continuing claims are 13 00:00:38,640 --> 00:00:40,480 Speaker 3: going up because it takes a little longer to find 14 00:00:40,479 --> 00:00:43,560 Speaker 3: a job. That's consistent with the hiring numbers just being 15 00:00:43,640 --> 00:00:46,960 Speaker 3: slower as the economy comes to a more sustainable pace. 16 00:00:47,280 --> 00:00:49,199 Speaker 3: But when I look at the labor market, there are 17 00:00:49,240 --> 00:00:52,440 Speaker 3: really no warning signs that it's weakening. WILL continue to 18 00:00:52,440 --> 00:00:56,520 Speaker 3: watch that, but right now it's progressing solidly, although more 19 00:00:56,560 --> 00:00:57,640 Speaker 3: slowly than before. 20 00:00:58,120 --> 00:01:00,400 Speaker 1: President Daily. A lot of people have said that it 21 00:01:00,440 --> 00:01:03,720 Speaker 1: is a data dependent federal reserve, and yet we haven't 22 00:01:03,720 --> 00:01:07,200 Speaker 1: seen enough data to really understand or whether inflation is 23 00:01:07,200 --> 00:01:10,240 Speaker 1: the primary objective or whether it really is some of 24 00:01:10,240 --> 00:01:12,119 Speaker 1: the weakening that we've seen in the labor market, albeit 25 00:01:12,200 --> 00:01:15,000 Speaker 1: from a strong place. When will you have enough data 26 00:01:15,160 --> 00:01:16,400 Speaker 1: to really make that determination. 27 00:01:17,440 --> 00:01:19,520 Speaker 3: Well, one of the challenges of central banking that you 28 00:01:19,600 --> 00:01:22,040 Speaker 3: just have to accept is that we never have perfect data, 29 00:01:22,120 --> 00:01:25,640 Speaker 3: so you're always making judgments, and you want sufficient data 30 00:01:25,680 --> 00:01:28,080 Speaker 3: to make a judgment that is really going to be 31 00:01:28,080 --> 00:01:31,000 Speaker 3: best for the American people. So right now we have 32 00:01:31,360 --> 00:01:34,480 Speaker 3: incoming information on the labor market which does not signal 33 00:01:34,720 --> 00:01:37,640 Speaker 3: real weakness, It just signals slowing, so we con needue 34 00:01:37,640 --> 00:01:40,160 Speaker 3: to watch that. And then on inflation, the data have 35 00:01:40,280 --> 00:01:42,360 Speaker 3: been good so far coming in. If we were only 36 00:01:42,400 --> 00:01:45,760 Speaker 3: backward looking, we would say, oh, it's time to adjust 37 00:01:45,760 --> 00:01:47,920 Speaker 3: the interest rate. But we have to be forward looking, 38 00:01:47,920 --> 00:01:50,120 Speaker 3: and then you have to make judgments about how you 39 00:01:50,200 --> 00:01:52,800 Speaker 3: think inflation will shape up going forward. And they always 40 00:01:52,840 --> 00:01:56,560 Speaker 3: really see three scenarios, and I'm leaning towards one, and 41 00:01:56,560 --> 00:01:59,440 Speaker 3: I'll tell you more and more. But the one scenario, 42 00:01:59,480 --> 00:02:01,720 Speaker 3: of course, is that it's just delayed. The tariffs are 43 00:02:01,720 --> 00:02:04,760 Speaker 3: going to have some impact on inflation. It is after all, 44 00:02:05,040 --> 00:02:08,600 Speaker 3: increasing costs, and that will be a more persistent effect. 45 00:02:09,160 --> 00:02:12,480 Speaker 3: The second opportunity or a possibility, is that it's delayed 46 00:02:12,480 --> 00:02:14,600 Speaker 3: but it will be a one off. And then the third, 47 00:02:14,600 --> 00:02:18,680 Speaker 3: of course, which I think is increasingly possible. It's not 48 00:02:18,760 --> 00:02:21,320 Speaker 3: my modal, but it's increasingly possible, is that this just 49 00:02:21,360 --> 00:02:24,000 Speaker 3: doesn't amount to as much as the models in history 50 00:02:24,040 --> 00:02:27,160 Speaker 3: would tell us, because businesses find ways to absorb the 51 00:02:27,240 --> 00:02:30,080 Speaker 3: costs and they split it down the production chain and 52 00:02:30,160 --> 00:02:32,600 Speaker 3: ultimately consumers pay less of that. So I think those 53 00:02:32,680 --> 00:02:35,880 Speaker 3: last two scenarios, it's delayed, but it's a one off, 54 00:02:36,040 --> 00:02:39,280 Speaker 3: or it doesn't materialize to the extent that the models 55 00:02:39,280 --> 00:02:43,120 Speaker 3: would suggest. Those are where I'm putting increasing probabilities. It 56 00:02:43,120 --> 00:02:46,160 Speaker 3: will just have to collect some more information to make 57 00:02:46,160 --> 00:02:48,760 Speaker 3: a decision. But you know, ultimately we can't wait for 58 00:02:48,800 --> 00:02:52,040 Speaker 3: perfect information or we'll be behind, and we can't do 59 00:02:52,120 --> 00:02:53,200 Speaker 3: that to the American people. 60 00:02:53,280 --> 00:02:55,640 Speaker 1: It sounds like President DAILI are leaning toward a sooner 61 00:02:55,720 --> 00:02:59,840 Speaker 1: rate cut if it is confirmed that this tariff impulse 62 00:02:59,880 --> 00:03:01,560 Speaker 1: is and as inflationary as people expected. 63 00:03:01,639 --> 00:03:04,280 Speaker 3: Is that correct, well sooner than what I mean? My 64 00:03:04,360 --> 00:03:07,280 Speaker 3: motal outlook has been for some time that we would 65 00:03:07,680 --> 00:03:11,080 Speaker 3: begin to be able to adjust the rates in the fall, 66 00:03:11,280 --> 00:03:13,959 Speaker 3: and I haven't really changed that view. It does seem 67 00:03:14,040 --> 00:03:16,639 Speaker 3: like that. Of course, if the tariffs are one off, 68 00:03:16,680 --> 00:03:19,280 Speaker 3: you can look through them, and if they're just not 69 00:03:19,360 --> 00:03:21,720 Speaker 3: going to materialize, and you have to watch both sides 70 00:03:21,720 --> 00:03:24,280 Speaker 3: of the mandate. And I think that's really important. It's 71 00:03:24,320 --> 00:03:26,840 Speaker 3: not one or the other. It's both sides of our 72 00:03:26,880 --> 00:03:30,000 Speaker 3: mandate that have really come into frame since we brought 73 00:03:30,000 --> 00:03:33,000 Speaker 3: inflation down from the really high levels to something that's 74 00:03:33,040 --> 00:03:35,880 Speaker 3: closer to our target. Ultimately, we have to watch both 75 00:03:35,920 --> 00:03:38,000 Speaker 3: sides and that's what I'm doing. And then the fall 76 00:03:38,040 --> 00:03:40,800 Speaker 3: looks promising for a rate cut. I don't know for sure. 77 00:03:40,840 --> 00:03:42,720 Speaker 3: I mean we have to be open about what we 78 00:03:42,800 --> 00:03:44,760 Speaker 3: don't know. Humble is I think the word that comes 79 00:03:44,760 --> 00:03:47,920 Speaker 3: out of the inflation run up and so but we will. 80 00:03:48,120 --> 00:03:50,480 Speaker 3: You know, there's a lot of differences of views on 81 00:03:50,520 --> 00:03:52,920 Speaker 3: the committee. I see that as real positive right now, 82 00:03:53,120 --> 00:03:55,680 Speaker 3: because people bring their perspectives and the data will guide 83 00:03:55,800 --> 00:03:58,960 Speaker 3: us to what is the one that ultimately looks like reality. 84 00:03:59,240 --> 00:04:02,400 Speaker 1: President daily John was talking about the Palace intrigue, and 85 00:04:02,480 --> 00:04:06,480 Speaker 1: I do wonder about how the increasingly political overlay to 86 00:04:06,600 --> 00:04:09,520 Speaker 1: the FED has complicated your messaging, given that there is 87 00:04:09,560 --> 00:04:12,480 Speaker 1: this debate about the dual mandate, etc. How much has 88 00:04:12,480 --> 00:04:14,080 Speaker 1: it affected the way that you communicate? 89 00:04:15,240 --> 00:04:17,840 Speaker 3: You know, not really. One of the things that I 90 00:04:17,880 --> 00:04:20,320 Speaker 3: recognize on a regular basis is if I go out 91 00:04:20,360 --> 00:04:23,159 Speaker 3: and talk to the people who live in the twelve 92 00:04:23,200 --> 00:04:26,280 Speaker 3: Federal Reserve districts, so that's nine states, very diverse states 93 00:04:26,279 --> 00:04:29,080 Speaker 3: in the West, they don't actually bring this up at all. 94 00:04:29,160 --> 00:04:31,120 Speaker 3: What they bring up is what do you think is 95 00:04:31,160 --> 00:04:33,359 Speaker 3: going to happen to inflation? Will you be able to 96 00:04:33,360 --> 00:04:35,960 Speaker 3: restore inflation to two percent? Will you be able to 97 00:04:36,000 --> 00:04:39,240 Speaker 3: restore price stability? Do you think the labor market is 98 00:04:39,600 --> 00:04:42,240 Speaker 3: going to be preserved during it? Because ultimately I really 99 00:04:42,240 --> 00:04:45,480 Speaker 3: want both jobs and lower inflation. I want to be 100 00:04:45,480 --> 00:04:48,160 Speaker 3: able to get ahead. And so far, the people in 101 00:04:48,200 --> 00:04:53,000 Speaker 3: my district are cautiously optimistic overall, thinking that the economy 102 00:04:53,040 --> 00:04:55,960 Speaker 3: is weathering some of the worst concerns and the uncertainties 103 00:04:56,160 --> 00:04:59,719 Speaker 3: but continuing to move along. So cautiously optimistic is where 104 00:04:59,720 --> 00:05:02,320 Speaker 3: they're where they are, and I think that reflects what's 105 00:05:02,320 --> 00:05:05,960 Speaker 3: on top of their mind, less about what's happening in Washington, 106 00:05:06,000 --> 00:05:08,680 Speaker 3: and more about what's happening in their lived experience, in 107 00:05:08,760 --> 00:05:09,839 Speaker 3: their communities. 108 00:05:09,920 --> 00:05:12,160 Speaker 1: So, President Daily, would you dismiss some of the discussions 109 00:05:12,200 --> 00:05:14,479 Speaker 1: around shadow fed and all of that is simply palace 110 00:05:14,560 --> 00:05:17,680 Speaker 1: intrigue and not necessarily affecting what would happen on the 111 00:05:17,760 --> 00:05:19,080 Speaker 1: feder Are you concerned about that? 112 00:05:20,160 --> 00:05:23,159 Speaker 3: You know, Ultimately, what I'm concerned about is the two 113 00:05:23,200 --> 00:05:26,560 Speaker 3: mandates Congress gave us full employment, price stability. There's work 114 00:05:26,600 --> 00:05:28,920 Speaker 3: to do there. That's where all of my focus is. 115 00:05:28,960 --> 00:05:32,560 Speaker 3: And the Federal Reserve is an institution. It weather's a 116 00:05:32,640 --> 00:05:36,440 Speaker 3: variety of different points in time ultimately, because we only 117 00:05:36,480 --> 00:05:39,000 Speaker 3: think of one thing, how our work and further the 118 00:05:39,040 --> 00:05:42,360 Speaker 3: American people in their lives and livelihoods, and how we 119 00:05:42,400 --> 00:05:45,320 Speaker 3: do that through our congressionally mandated goals. So that's what 120 00:05:45,400 --> 00:05:48,200 Speaker 3: we think about. We've had a durable history since nineteen thirteen, 121 00:05:48,680 --> 00:05:51,680 Speaker 3: and I would consider that to be continuing to do 122 00:05:51,720 --> 00:05:52,360 Speaker 3: our job well. 123 00:05:52,520 --> 00:05:55,560 Speaker 2: President Daddie. One argument we've heard to reduce interest rates 124 00:05:55,640 --> 00:05:58,440 Speaker 2: sooner than maybe say the fall, as you indicated, is 125 00:05:58,480 --> 00:06:00,640 Speaker 2: that basically the labor market right now it's no longer 126 00:06:00,640 --> 00:06:03,320 Speaker 2: a source for inflation. And with that in mind, there 127 00:06:03,360 --> 00:06:05,640 Speaker 2: is space to reduce interest rates because the fact believes 128 00:06:05,640 --> 00:06:08,839 Speaker 2: that the policy right is still restrictive. Does that not 129 00:06:08,920 --> 00:06:10,160 Speaker 2: convince you enough right now? 130 00:06:12,000 --> 00:06:15,400 Speaker 3: Not completely, because remember, inflation has been above our target 131 00:06:15,520 --> 00:06:19,320 Speaker 3: for some time, well above our target during periods of time, 132 00:06:19,720 --> 00:06:22,120 Speaker 3: and there's a sense where people really want us to 133 00:06:22,160 --> 00:06:25,160 Speaker 3: get that down. Inflation is a tax on people, and 134 00:06:25,240 --> 00:06:28,279 Speaker 3: every time we let people continue paying that tax, it 135 00:06:28,360 --> 00:06:31,239 Speaker 3: erodes their well being. So I'm very focused on getting 136 00:06:31,240 --> 00:06:34,279 Speaker 3: inflation down to two percent us. Being sure that we're 137 00:06:34,279 --> 00:06:36,840 Speaker 3: on that sustainable path as long as the labor market 138 00:06:36,920 --> 00:06:40,200 Speaker 3: doesn't show signs of weakening is really important. So you 139 00:06:40,320 --> 00:06:42,080 Speaker 3: have to make a view. You have to have a 140 00:06:42,160 --> 00:06:45,360 Speaker 3: view about what you think tariffs will do to inflation. Now, 141 00:06:45,360 --> 00:06:50,520 Speaker 3: my own view is that they will potentially raise inflation, 142 00:06:51,320 --> 00:06:55,200 Speaker 3: that's my motal outlook, but they should dissipate over the period. 143 00:06:55,200 --> 00:06:58,360 Speaker 3: It's not going to be something that builds into inflation expectations, 144 00:06:58,760 --> 00:07:01,159 Speaker 3: and thus we really have to against it. But we 145 00:07:01,200 --> 00:07:04,360 Speaker 3: can't just be assuming we know just because that's our 146 00:07:04,400 --> 00:07:08,359 Speaker 3: modal outlook. We have to really collect the information and understand. Remember, 147 00:07:08,600 --> 00:07:12,040 Speaker 3: data dependence isn't a backward looking activity, it's a forward 148 00:07:12,040 --> 00:07:15,320 Speaker 3: looking activity. Right now, we're looking forward by talking to 149 00:07:15,400 --> 00:07:18,680 Speaker 3: our contacts, and they still feel uncertain about what they 150 00:07:18,720 --> 00:07:21,000 Speaker 3: will do. They're going to try to pass some along, 151 00:07:21,040 --> 00:07:23,880 Speaker 3: but they, as a number of people you've had on 152 00:07:23,920 --> 00:07:26,800 Speaker 3: your show have mentioned, firms don't have all those abilities, 153 00:07:26,840 --> 00:07:30,000 Speaker 3: whether they're managing their brand or just they have exhausted 154 00:07:30,000 --> 00:07:33,120 Speaker 3: consumers who can't take anymore. That's what we're waiting to 155 00:07:33,200 --> 00:07:36,360 Speaker 3: find out. But I don't think we're behind in our waiting. 156 00:07:36,920 --> 00:07:38,880 Speaker 3: Policy in a good place. The economy is in a 157 00:07:38,920 --> 00:07:42,360 Speaker 3: good place, and that's what we'll continue to monitor President daily. 158 00:07:42,400 --> 00:07:44,160 Speaker 1: How much of a lesson was it last year when 159 00:07:44,160 --> 00:07:46,160 Speaker 1: the FED cut by one hundred basis points only to 160 00:07:46,200 --> 00:07:49,600 Speaker 1: see long term yields rise significantly in the face of 161 00:07:49,680 --> 00:07:53,120 Speaker 1: growth and inflation expectations. Is that something that you worry 162 00:07:53,160 --> 00:07:55,560 Speaker 1: about could happen now? You know what? 163 00:07:55,800 --> 00:07:58,840 Speaker 3: Really, financial markets are an input to our to my decisions, 164 00:07:58,920 --> 00:08:02,400 Speaker 3: not an output that I'm worrying about. And ultimately, you know, 165 00:08:02,440 --> 00:08:05,560 Speaker 3: we want to see financial conditions align with what we're 166 00:08:05,560 --> 00:08:07,760 Speaker 3: trying to do for the economy, and we'll adjust as 167 00:08:07,840 --> 00:08:10,600 Speaker 3: need it. But you know, we make policy. There's many 168 00:08:10,640 --> 00:08:14,000 Speaker 3: things that affect yields. We make policy that we believe 169 00:08:14,120 --> 00:08:18,120 Speaker 3: will be with the lags of monetary policy supportive of 170 00:08:18,160 --> 00:08:20,160 Speaker 3: both of our goals, and so I haven't I don't 171 00:08:20,200 --> 00:08:22,200 Speaker 3: spend a lot of time wondering what the bond market 172 00:08:22,200 --> 00:08:25,040 Speaker 3: will do, especially given there's so many things going on 173 00:08:25,120 --> 00:08:27,600 Speaker 3: in the bond market right now. It's been quite volatile. 174 00:08:27,880 --> 00:08:30,960 Speaker 3: So really it's about what did financial conditions overall do 175 00:08:31,120 --> 00:08:34,280 Speaker 3: and what does that do to growth and activity and inflation? 176 00:08:34,400 --> 00:08:37,120 Speaker 3: Does it restrain it or or support it? And that's 177 00:08:37,160 --> 00:08:40,080 Speaker 3: that's where my focus is as it helps on input. 178 00:08:39,880 --> 00:08:42,000 Speaker 2: Just co President, I just want to squeeze this in. 179 00:08:42,400 --> 00:08:45,040 Speaker 2: What would life be like with a permanent role in Washington, 180 00:08:45,120 --> 00:08:47,960 Speaker 2: d C. Compared to say San Francisco? How would that 181 00:08:48,000 --> 00:08:49,559 Speaker 2: feel hotter? 182 00:08:52,040 --> 00:08:54,400 Speaker 3: But seriously, you know, one of the things that I've 183 00:08:54,600 --> 00:08:58,040 Speaker 3: I've my experience with the Federal Reserve is you have 184 00:08:58,120 --> 00:09:01,120 Speaker 3: to contribute from wherever you sit. And that's what we 185 00:09:01,160 --> 00:09:03,840 Speaker 3: all do when we get around that table. There's nineteen 186 00:09:03,880 --> 00:09:06,200 Speaker 3: of us, and we don't think about who is in 187 00:09:06,280 --> 00:09:09,960 Speaker 3: what role. It's really how do we debate, discuss, bring 188 00:09:10,000 --> 00:09:13,520 Speaker 3: our best thinking and our best disagreement to bear so 189 00:09:13,600 --> 00:09:16,120 Speaker 3: we can make the right decision at the right moment 190 00:09:16,400 --> 00:09:17,360 Speaker 3: for the people we serve. 191 00:09:17,480 --> 00:09:20,160 Speaker 2: President Donnie appreciate your time, very diplomatic. As a wise