Speaker 1: Bloomberg Audio Studios, podcasts, radio news. The debate is rich
Speaker 1: around AI's economic disruption. Is it growing more intense? Some
Speaker 1: see the technology that can unlock enormous gains productivity and growth,
Speaker 1: but others that they want of disruption, of unintended consequences.
Speaker 1: And we want to try and understand the sort of
Speaker 1: messy middle of all of this with Mary Daily, President
Speaker 1: of Federal Reserve Bank of San Francisco. Mary Daily, extraordinary
Speaker 1: the data that you now have to lean upon trying
Speaker 1: to understand what's fact, what's fiction, what's utopia, what's what sensationalism?
Speaker 1: Who do you go to for your for your data
Speaker 1: on whether productivity is working?
Speaker 2: I thought of the businesses who were using the technology,
Speaker 2: because you can always encounter enthusiasts or doom sayers, but
Speaker 2: it's really the people in the middle, as you said,
Speaker 2: who are using that technology thinking about it, and I've
Speaker 2: seen tremendous interest in it it last year and now
Speaker 2: I'm seeing tremendous investment in it, thinking about how do
Speaker 2: they train their workforces to be ready, how do they
Speaker 2: think about what AI can do not just in the
Speaker 2: back office, but in the front of house of operations
Speaker 2: and We're seeing this in small businesses, medium and large,
Speaker 2: in global companies and more regional ones, and importantly in
Speaker 2: everything from agriculture to machining and building things to services.
Speaker 2: And I think that's really the place we haven't seen
Speaker 2: widespread productivity gains yet. The ROI is still to be developed,
Speaker 2: but I'm definitely seeing the enthusiasm, and it's picked up
Speaker 2: tremendously in the last year.
Speaker 3: We haven't seen the productivity gains yet. You know you're
Speaker 3: being very clear on that. As you remember, I asked
Speaker 3: you over and over again for an hour, please show
Speaker 3: me the productivity gains. But in the economic data, whichever
Speaker 3: set of data you want to look at, do you
Speaker 3: see an impact from AI negative or positive?
Speaker 4: It's really hard to take.
Speaker 2: We have had productivity growth that's been outside of the
Speaker 2: historical norm, and I think that's a positive for the
Speaker 2: US economy.
Speaker 4: Everyone wants to say that's AI.
Speaker 2: What I think of it is as sure, it's possible
Speaker 2: that businesses are looking for cost savings and they hire
Speaker 2: fewer workers than they do just as much because they're
Speaker 2: using an.
Speaker 4: LA I'm assistant to help.
Speaker 2: But we just haven't heard from businesses that they're seeing
Speaker 2: transformative ongoing productivity gains yet and they want to always
Speaker 2: underscore yet. And so then I said, well, what's the
Speaker 2: time frame and they said next year, year after. Because
Speaker 2: what we know is it isn't just about getting a
Speaker 2: model and using it for things or an agent. It's
Speaker 2: about transforming your business processes so that you really take
Speaker 2: advantage of things we don't even think about today, what
Speaker 2: can be done differently that we'll transform the economy. So
Speaker 2: you can definitely find a single business or sectors who
Speaker 2: are using it and seeing the gains, but we haven't
Speaker 2: seen that across the economy going forward.
Speaker 4: But I'm pretty bullish.
Speaker 2: I see the possibilities, and I'm hearing more and more
Speaker 2: that people are seeing early rewards and really recognizing them.
Speaker 4: Next year is the litmus test.
Speaker 1: But this is an interesting kind of phrase today, putting
Speaker 1: aside this slight dip in the market, the exuberance that
Speaker 1: we have seen in financial markets to want to back
Speaker 1: these companies, and we're about to get more public companies coming,
Speaker 1: more liquidity, more money. Is that in and of itself
Speaker 1: a financial stability issue. You worried about the market's rioting
Speaker 1: so high.
Speaker 2: You remember, you know who's doing most of this investment
Speaker 2: at the mag seven who's really there. This is actually
Speaker 2: something they can do and fund, and their enthusiasm is real.
Speaker 2: They see what's possible. But I don't think that we
Speaker 2: should think, oh, there's financial stability concerns just because the
Speaker 2: market's going up. It could go up or down as
Speaker 2: it has in the past, but a financial stability issue
Speaker 2: would mean it's spread to the banks, it's spread to
Speaker 2: consumers or businesses. Right now, I'm not seeing evidence of that.
Speaker 2: We keep our eye on it for absolute sure, but
Speaker 2: what I am seeing is that companies other than the
Speaker 2: technology enthusiasts, companies outside of technology, are using AI to
Speaker 2: think about how to do their business better in real ways.
Speaker 2: I mean, I was just meeting with some machine to
Speaker 2: make machines for a living, that's what they do, and
Speaker 2: they're thinking about, how do I scan in fifty years
Speaker 2: of plans of these machines I've built for companies and
Speaker 2: then use those plans and the model to generate innovative
Speaker 2: new ideas of things I can sell that will be faster, better,
Speaker 2: cheaper than things I've sold before.
Speaker 4: We toured a robotics company.
Speaker 2: That builds things that help manufacturers do better in terms
Speaker 2: of shipping and distribution. These are real things that do
Speaker 2: have a capacity to change the economy. So that's why
Speaker 2: that's the underlying part of my bull is it has
Speaker 2: less to do about the investments that tech companies are
Speaker 2: making and more about the investments that every day regular
Speaker 2: companies that make things and provide services, the things they're.
Speaker 5: Doing president daily.
Speaker 3: Inflation is still the biggest risk and the those are
Speaker 3: not my words. We heard it, you know, all week
Speaker 3: long the Bloomberg Credit Forum, for example.
Speaker 5: One of the things that you and I have.
Speaker 3: Discussed in the past is is the massive CAPEX commitment
Speaker 3: build out of data center in conjunction with a bottleneck
Speaker 3: in some core areas like memory inflationary or is it disinflationary?
Speaker 3: You know, that's the thesis that like a utility of
Speaker 3: pgene would argue disinflationary because the big guys are buying
Speaker 3: and aggregate. I still don't understand where we are with that.
Speaker 2: It's a timing issue in my judgment that you know,
Speaker 2: in the beginning of course, when companies want to invest
Speaker 2: in big construction projects a lot of electro electricity demand,
Speaker 2: then the companies that are providing those things or areas
Speaker 2: that are providing those things are going to see competition
Speaker 2: for the limited amount of services they have, But what
Speaker 2: they're building creates the infrastructure. The data centers create the infrastructure.
Speaker 4: Or if the big.
Speaker 2: Guys come in as you just said and help with
Speaker 2: electrical plants that help with electricity generation, that eventually can
Speaker 2: help with the prices of those things.
Speaker 5: Don't hear it now, but you just.
Speaker 4: Have to think about the timing.
Speaker 2: And one of the things is really important in policy
Speaker 2: making is that we not assume we know. We actually
Speaker 2: look for the evidence of what are we seeing in
Speaker 2: prices today, what are we seeing in what is the
Speaker 2: forecast of prices tomorrow? And then how do we think
Speaker 2: about policy. So right now I'm focused on you know,
Speaker 2: other energy prices, oil prices, and food prices are driving
Speaker 2: up inflation. What we do know that down the road
Speaker 2: these things could maybe compete for services and costs and
Speaker 2: raise costs, but we haven't seen real evidence that that's
Speaker 2: the limiting factor. The limiting factor seems it's hard to
Speaker 2: get generators, it's hard to get the infrastructure equipment you need,
Speaker 2: and so you see the big tech companies thinking about
Speaker 2: solutions they can provide for themselves.
Speaker 1: The inflationary dates must be fascinating here in San Francisco.
Speaker 1: When I think about all these companies potentially going public, well,
Speaker 1: that means for the employee base, Well that means for
Speaker 1: your health price and the ability to.
Speaker 4: Be able to buy yet more readA state here. What
Speaker 4: it means for the cost of late as well?
Speaker 1: Is there an infrationory pressia that you're seeing in some
Speaker 1: I've lived through.
Speaker 2: So I moved to San Francisco in nineteen ninety six
Speaker 2: and then we had the dot com and I know
Speaker 2: what it feels like to not be able to rent
Speaker 2: a place that's affordable because the people who are making
Speaker 2: milliony more.
Speaker 4: Orders of magnitude.
Speaker 2: And I was, you know, in a position where that's manageable.
Speaker 2: But that's what's happening is people feel like they're getting
Speaker 2: crowded out because other things are happening. But that's more
Speaker 2: about the supply of housing than it is about the
Speaker 2: demand for housing. We want people to come and invest
Speaker 2: in this community. We want the city to thrive, We
Speaker 2: want regional activity to thrive, in employment to grow. But
Speaker 2: as you said, you know, the more interest people have
Speaker 2: in living in a place if you have limited supply
Speaker 2: of housing, then you're going to have a run up.
Speaker 2: So those are the things that not the FED, but
Speaker 2: other policymakers, other federal policies of makers, and local policy
Speaker 2: makers like the mayor are working on.
Speaker 4: But it looks very you know, you can see the.
Speaker 2: Elements of nineteen ninety six already here, where there's productivity growth,
Speaker 2: there's enthusis sasm et cetera.
Speaker 1: But the data bubble is there a risk that we're
Speaker 1: in that saying, you.
Speaker 2: Know, the dot com was very different than the AI boom,
Speaker 2: and so I just want to you know, there's a
Speaker 2: lot there that's already being put into businesses and it's
Speaker 2: very pervasive.
Speaker 4: It's not just the dot com.
Speaker 2: So I don't jump to the conclusion that if it
Speaker 2: has similarities to the nineties, it's going to be the.
Speaker 3: Ninth Well, if I may presentay, you went out and
Speaker 3: did some of the most important work in that era
Speaker 3: of how the advent of the internet would change the economy. Look,
Speaker 3: so you've kind of established where we sit right now.
Speaker 3: Inflation continues to rise, how likely or unlikely would that
Speaker 3: make a rate cut in twenty twenty six? How do
Speaker 3: you tie the two together? From this juncture onward.
Speaker 2: You know, I think one of the questions I get
Speaker 2: asked regularly is what's the path for the rates going forward? Yeah,
Speaker 2: And the answer I give, because this is how I
Speaker 2: really think we have to think about it, is we
Speaker 2: don't know how the economy is going to play out.
Speaker 2: We have, as we've been talking about, this tremendous possibility
Speaker 2: with AI, but we have the same time, the war
Speaker 2: in Iran, that is with an uncertain end, which has
Speaker 2: pushed oil prices up and fertilizer prices which have filtered
Speaker 2: into food prices. And right now those are fairly contained.
Speaker 2: And if you look at the futures market for oil,
Speaker 2: it's eighty dollars a barrel by the end of the year.
Speaker 2: But we have to think about that, and so right
Speaker 2: now policy is in a good place. We are prepared
Speaker 2: to respond either way whatever the economy brings. But I
Speaker 2: think giving more forward guidance about what's possible could be
Speaker 2: misguiding in the end, because we just have to wait
Speaker 2: for the economy to evolve. Everybody wants to resolve the
Speaker 2: uncertainty today, but I think that's a mistake because it
Speaker 2: will close off our mind about what we really have
Speaker 2: to look at the inflation risk possibility, but also the
Speaker 2: possibility that the war ends, oil prices come back down
Speaker 2: and we're back to the underlying dynamics with some of
Speaker 2: the positives of AI we've been talking about.
Speaker 1: Can I ask you about the labor market as well,
Speaker 1: because you've tried to bring this transpondency of thinking about
Speaker 1: things with your blog, for example, and one of the
Speaker 1: really interesting ones that I was reading and capture my
Speaker 1: attention was the idea that we've got zero labor growth now.
Speaker 1: Immigrations changed the way in which demographics change. Are you
Speaker 1: feeling like we've seen some improvement, some some resilience in
Speaker 1: the labor monket gap and will that hold?
Speaker 5: Has it firmed?
Speaker 2: Yeah, you know, I think it's too early to stay firmed.
Speaker 2: I think we're you know, there's always statistical air, so
Speaker 2: you can bounce around from month to month. But if
Speaker 2: you you know, I was one of the people who
Speaker 2: policymakers who were a little worried about the labor market
Speaker 2: at the end of last year, was very supportive of
Speaker 2: the cuts that we took to stabilize conditions there. So
Speaker 2: relative to that point, I think this is we've really
Speaker 2: stabilized and I'm starting to see businesses feel a little
Speaker 2: more cautiously optimistic, which will feed through to hiring. But
Speaker 2: they're not being you know, they're not just running out
Speaker 2: to hire people they are right and you get an agent.
Speaker 2: They're interrogating how much AI can do for them before
Speaker 2: they hire. And you know, regularly we talk to our
Speaker 2: businesses and they say, we don't want to hire a
Speaker 2: bunch of people. Find out AI can do certain things,
Speaker 2: and we did a different set of skills, So we
Speaker 2: want to wait. We want to be patient on our
Speaker 2: hiring and make sure we're not over hiring. Because if
Speaker 2: you ever go through a period of time where a
Speaker 2: business has to lay workers off, it's a painful experience
Speaker 2: for the workers in for them, and so they just
Speaker 2: don't want to get overly confident only to find out
Speaker 2: they have to make adjustments.
Speaker 4: So that caution will be with us for a bit.
Speaker 3: We are live on Bloomberg Television and Bloomberg Radio.
Speaker 5: We're in San Francisco.
Speaker 3: And we're at the Bloomberg Tech event, and we're speaking
Speaker 3: with San Francisco FED President Mary Daily Reset a little bit.
Speaker 3: But if I may, it's the first opportunity we've had
Speaker 3: to ask you, have you spoken to Chairman Walsh about
Speaker 3: how he sees the FED evolving about changes to the
Speaker 3: institution and if you may fold in the context of
Speaker 3: your district San Francisco Fed. Yes, much more than that
Speaker 3: and your role going forward.
Speaker 2: Sure, absolutely, So, you know, I think what we really
Speaker 2: want when any new chair comes in, and what we
Speaker 2: want from all of our leaders of federaliserve banks and
Speaker 2: all of our governors, is that you're thinking constantly about
Speaker 2: how can the FED be better? How can it better
Speaker 2: serve the American people? How can we do our work
Speaker 2: more efficiently, more effectively, and more resiliently. You know, ultimately
Speaker 2: everything we talk about is put between two bookends. We
Speaker 2: are fiduciary stuarts of public trust, which means we better
Speaker 2: have services that people can depend on and we better
Speaker 2: work hard to.
Speaker 4: Achieve our goals.
Speaker 2: And we're fiduciary stewards of public funds, which is we
Speaker 2: are very careful about how we spend taxpayer dollars. So
Speaker 2: with those two things in mind, you know, I mentioned
Speaker 2: I joined the FED back in the nineties. So I
Speaker 2: joined the FED in the nineties and we had check
Speaker 2: processing member checks, We had check processing.
Speaker 4: I thought the right legs.
Speaker 2: Everywhere, everywhere in the everywhere we had a location, we
Speaker 2: had people who process checks, but then check demand started
Speaker 2: to fall and so we consolidated those actives.
Speaker 4: But he's into a few locations.
Speaker 2: And that level of modernizing, constantly thinking about how can
Speaker 2: you do better?
Speaker 4: Is what I see now.
Speaker 5: So what is the chairs equivalent of that.
Speaker 4: Just joined?
Speaker 2: So I'm going to give him the right time he
Speaker 2: has to announce that. He's talked about making sure he's
Speaker 2: holding onto that tradition, and he comes in with a
Speaker 2: lot of ideas. But you know what I've heard him
Speaker 2: say again and again, which I really appreciate because all
Speaker 2: he's the fifth chair I've worked with.
Speaker 4: All of the chairs I've worked with have the same
Speaker 4: basic compass.
Speaker 2: It is to do our best work for the American
Speaker 2: people and work with all the individuals who are earnestly
Speaker 2: doing their work in the FED to do it well.
Speaker 4: And I see that in chair worsh that.
Speaker 1: Earnest work within the FED. How much of that is
Speaker 1: being was anized to use adult AI. How hord or
Speaker 1: easy is it at the moment when you're such a
Speaker 1: regulated the institution in and.
Speaker 2: Of yourself well we're careful, like all regulated institutions, and
Speaker 2: importantly like all businesses. Businesses, and when I talk to businesses,
Speaker 2: the last thing that want to do it's a huge
Speaker 2: risk that destroy their shareholders. They're the value of their company.
Speaker 2: The same is true for us good fiduciary stewarts of
Speaker 2: public trust and good fiduciary stuarts of public funds, which
Speaker 2: means we're always driving to adopt new technology to do
Speaker 2: our work more efficiently, but we recognize we have to
Speaker 2: do that safely. You know, people want to know they
Speaker 2: get and get their money when they need it. They
Speaker 2: want to know that the banks are well supervised. They
Speaker 2: want to know that Monterey policy is not made by machines.
Speaker 4: It's made by people making judgments not.
Speaker 2: Only about models and rules, but also about the lived
Speaker 2: experiences of people across our country.
Speaker 3: Very quickly, before the show ends, what are you saying
Speaker 3: in credit? That's a big story for us in how
Speaker 3: data centers are financed.
Speaker 5: For some it's very worrying.
Speaker 4: Well, you know, we're watching that carefully. I watch that carefully.
Speaker 2: What we do see is that there's a lot of
Speaker 2: there's those companies investing a lot of their own resources
Speaker 2: in those so it's something to keep our eye on.
Speaker 2: But at this point, you know, again, if if you
Speaker 2: stack rank the things that are worrying today, I'd say
Speaker 2: getting inflation back to target, Getting Americans the relief they
Speaker 2: deserve that we've been working on for quite a while.
Speaker 4: That's my number one priority.