Speaker 1: Bloomberg Audio Studios, podcasts, Radio News.
Speaker 2: San Francisco FED. President Mary Daily, President Dady, welcome back
Speaker 2: to the program. It's good to catch up with you.
Speaker 2: I want to start with this data and maybe we
Speaker 2: can spend some time on a palace intrigue later on
Speaker 2: jobless claims, initial claims lower than expected, continuing claims higher
Speaker 2: than expected, and creeping higher over the past few months.
Speaker 2: From your advantage point, President DAii, how much weight would
Speaker 2: you put on one versus the other and what's the
Speaker 2: labor market picture look like in your point of view?
Speaker 3: Your opinion, Well, the labor market shaping up to be solid,
Speaker 3: and the data today confirmed that. Now continuing claims are
Speaker 3: going up because it takes a little longer to find
Speaker 3: a job. That's consistent with the hiring numbers just being
Speaker 3: slower as the economy comes to a more sustainable pace.
Speaker 3: But when I look at the labor market, there are
Speaker 3: really no warning signs that it's weakening. WILL continue to
Speaker 3: watch that, but right now it's progressing solidly, although more
Speaker 3: slowly than before.
Speaker 1: President Daily. A lot of people have said that it
Speaker 1: is a data dependent federal reserve, and yet we haven't
Speaker 1: seen enough data to really understand or whether inflation is
Speaker 1: the primary objective or whether it really is some of
Speaker 1: the weakening that we've seen in the labor market, albeit
Speaker 1: from a strong place. When will you have enough data
Speaker 1: to really make that determination.
Speaker 3: Well, one of the challenges of central banking that you
Speaker 3: just have to accept is that we never have perfect data,
Speaker 3: so you're always making judgments, and you want sufficient data
Speaker 3: to make a judgment that is really going to be
Speaker 3: best for the American people. So right now we have
Speaker 3: incoming information on the labor market which does not signal
Speaker 3: real weakness, It just signals slowing, so we con needue
Speaker 3: to watch that. And then on inflation, the data have
Speaker 3: been good so far coming in. If we were only
Speaker 3: backward looking, we would say, oh, it's time to adjust
Speaker 3: the interest rate. But we have to be forward looking,
Speaker 3: and then you have to make judgments about how you
Speaker 3: think inflation will shape up going forward. And they always
Speaker 3: really see three scenarios, and I'm leaning towards one, and
Speaker 3: I'll tell you more and more. But the one scenario,
Speaker 3: of course, is that it's just delayed. The tariffs are
Speaker 3: going to have some impact on inflation. It is after all,
Speaker 3: increasing costs, and that will be a more persistent effect.
Speaker 3: The second opportunity or a possibility, is that it's delayed
Speaker 3: but it will be a one off. And then the third,
Speaker 3: of course, which I think is increasingly possible. It's not
Speaker 3: my modal, but it's increasingly possible, is that this just
Speaker 3: doesn't amount to as much as the models in history
Speaker 3: would tell us, because businesses find ways to absorb the
Speaker 3: costs and they split it down the production chain and
Speaker 3: ultimately consumers pay less of that. So I think those
Speaker 3: last two scenarios, it's delayed, but it's a one off,
Speaker 3: or it doesn't materialize to the extent that the models
Speaker 3: would suggest. Those are where I'm putting increasing probabilities. It
Speaker 3: will just have to collect some more information to make
Speaker 3: a decision. But you know, ultimately we can't wait for
Speaker 3: perfect information or we'll be behind, and we can't do
Speaker 3: that to the American people.
Speaker 1: It sounds like President DAILI are leaning toward a sooner
Speaker 1: rate cut if it is confirmed that this tariff impulse
Speaker 1: is and as inflationary as people expected.
Speaker 3: Is that correct, well sooner than what I mean? My
Speaker 3: motal outlook has been for some time that we would
Speaker 3: begin to be able to adjust the rates in the fall,
Speaker 3: and I haven't really changed that view. It does seem
Speaker 3: like that. Of course, if the tariffs are one off,
Speaker 3: you can look through them, and if they're just not
Speaker 3: going to materialize, and you have to watch both sides
Speaker 3: of the mandate. And I think that's really important. It's
Speaker 3: not one or the other. It's both sides of our
Speaker 3: mandate that have really come into frame since we brought
Speaker 3: inflation down from the really high levels to something that's
Speaker 3: closer to our target. Ultimately, we have to watch both
Speaker 3: sides and that's what I'm doing. And then the fall
Speaker 3: looks promising for a rate cut. I don't know for sure.
Speaker 3: I mean we have to be open about what we
Speaker 3: don't know. Humble is I think the word that comes
Speaker 3: out of the inflation run up and so but we will.
Speaker 3: You know, there's a lot of differences of views on
Speaker 3: the committee. I see that as real positive right now,
Speaker 3: because people bring their perspectives and the data will guide
Speaker 3: us to what is the one that ultimately looks like reality.
Speaker 1: President daily John was talking about the Palace intrigue, and
Speaker 1: I do wonder about how the increasingly political overlay to
Speaker 1: the FED has complicated your messaging, given that there is
Speaker 1: this debate about the dual mandate, etc. How much has
Speaker 1: it affected the way that you communicate?
Speaker 3: You know, not really. One of the things that I
Speaker 3: recognize on a regular basis is if I go out
Speaker 3: and talk to the people who live in the twelve
Speaker 3: Federal Reserve districts, so that's nine states, very diverse states
Speaker 3: in the West, they don't actually bring this up at all.
Speaker 3: What they bring up is what do you think is
Speaker 3: going to happen to inflation? Will you be able to
Speaker 3: restore inflation to two percent? Will you be able to
Speaker 3: restore price stability? Do you think the labor market is
Speaker 3: going to be preserved during it? Because ultimately I really
Speaker 3: want both jobs and lower inflation. I want to be
Speaker 3: able to get ahead. And so far, the people in
Speaker 3: my district are cautiously optimistic overall, thinking that the economy
Speaker 3: is weathering some of the worst concerns and the uncertainties
Speaker 3: but continuing to move along. So cautiously optimistic is where
Speaker 3: they're where they are, and I think that reflects what's
Speaker 3: on top of their mind, less about what's happening in Washington,
Speaker 3: and more about what's happening in their lived experience, in
Speaker 3: their communities.
Speaker 1: So, President Daily, would you dismiss some of the discussions
Speaker 1: around shadow fed and all of that is simply palace
Speaker 1: intrigue and not necessarily affecting what would happen on the
Speaker 1: feder Are you concerned about that?
Speaker 3: You know, Ultimately, what I'm concerned about is the two
Speaker 3: mandates Congress gave us full employment, price stability. There's work
Speaker 3: to do there. That's where all of my focus is.
Speaker 3: And the Federal Reserve is an institution. It weather's a
Speaker 3: variety of different points in time ultimately, because we only
Speaker 3: think of one thing, how our work and further the
Speaker 3: American people in their lives and livelihoods, and how we
Speaker 3: do that through our congressionally mandated goals. So that's what
Speaker 3: we think about. We've had a durable history since nineteen thirteen,
Speaker 3: and I would consider that to be continuing to do
Speaker 3: our job well.
Speaker 2: President Daddie. One argument we've heard to reduce interest rates
Speaker 2: sooner than maybe say the fall, as you indicated, is
Speaker 2: that basically the labor market right now it's no longer
Speaker 2: a source for inflation. And with that in mind, there
Speaker 2: is space to reduce interest rates because the fact believes
Speaker 2: that the policy right is still restrictive. Does that not
Speaker 2: convince you enough right now?
Speaker 3: Not completely, because remember, inflation has been above our target
Speaker 3: for some time, well above our target during periods of time,
Speaker 3: and there's a sense where people really want us to
Speaker 3: get that down. Inflation is a tax on people, and
Speaker 3: every time we let people continue paying that tax, it
Speaker 3: erodes their well being. So I'm very focused on getting
Speaker 3: inflation down to two percent us. Being sure that we're
Speaker 3: on that sustainable path as long as the labor market
Speaker 3: doesn't show signs of weakening is really important. So you
Speaker 3: have to make a view. You have to have a
Speaker 3: view about what you think tariffs will do to inflation. Now,
Speaker 3: my own view is that they will potentially raise inflation,
Speaker 3: that's my motal outlook, but they should dissipate over the period.
Speaker 3: It's not going to be something that builds into inflation expectations,
Speaker 3: and thus we really have to against it. But we
Speaker 3: can't just be assuming we know just because that's our
Speaker 3: modal outlook. We have to really collect the information and understand. Remember,
Speaker 3: data dependence isn't a backward looking activity, it's a forward
Speaker 3: looking activity. Right now, we're looking forward by talking to
Speaker 3: our contacts, and they still feel uncertain about what they
Speaker 3: will do. They're going to try to pass some along,
Speaker 3: but they, as a number of people you've had on
Speaker 3: your show have mentioned, firms don't have all those abilities,
Speaker 3: whether they're managing their brand or just they have exhausted
Speaker 3: consumers who can't take anymore. That's what we're waiting to
Speaker 3: find out. But I don't think we're behind in our waiting.
Speaker 3: Policy in a good place. The economy is in a
Speaker 3: good place, and that's what we'll continue to monitor President daily.
Speaker 1: How much of a lesson was it last year when
Speaker 1: the FED cut by one hundred basis points only to
Speaker 1: see long term yields rise significantly in the face of
Speaker 1: growth and inflation expectations. Is that something that you worry
Speaker 1: about could happen now? You know what?
Speaker 3: Really, financial markets are an input to our to my decisions,
Speaker 3: not an output that I'm worrying about. And ultimately, you know,
Speaker 3: we want to see financial conditions align with what we're
Speaker 3: trying to do for the economy, and we'll adjust as
Speaker 3: need it. But you know, we make policy. There's many
Speaker 3: things that affect yields. We make policy that we believe
Speaker 3: will be with the lags of monetary policy supportive of
Speaker 3: both of our goals, and so I haven't I don't
Speaker 3: spend a lot of time wondering what the bond market
Speaker 3: will do, especially given there's so many things going on
Speaker 3: in the bond market right now. It's been quite volatile.
Speaker 3: So really it's about what did financial conditions overall do
Speaker 3: and what does that do to growth and activity and inflation?
Speaker 3: Does it restrain it or or support it? And that's
Speaker 3: that's where my focus is as it helps on input.
Speaker 2: Just co President, I just want to squeeze this in.
Speaker 2: What would life be like with a permanent role in Washington,
Speaker 2: d C. Compared to say San Francisco? How would that
Speaker 2: feel hotter?
Speaker 3: But seriously, you know, one of the things that I've
Speaker 3: I've my experience with the Federal Reserve is you have
Speaker 3: to contribute from wherever you sit. And that's what we
Speaker 3: all do when we get around that table. There's nineteen
Speaker 3: of us, and we don't think about who is in
Speaker 3: what role. It's really how do we debate, discuss, bring
Speaker 3: our best thinking and our best disagreement to bear so
Speaker 3: we can make the right decision at the right moment
Speaker 3: for the people we serve.
Speaker 2: President Donnie appreciate your time, very diplomatic. As a wise