WEBVTT - Fed's Mary Daly Talks Inflation, Monetary Policy 0:00:02.520 --> 0:00:08.320 Bloomberg Audio Studios, podcasts, radio news that's turn. 0:00:08.240 --> 0:00:11.000 To the Federal Reserve policymaker is remaining divided ahead of 0:00:11.000 --> 0:00:14.200 the December meeting. The San Francisco Fed President Merry Daily, 0:00:14.280 --> 0:00:17.040 writing in a blog this morning, we must ask ourselves, 0:00:17.239 --> 0:00:20.080 are we in the nineteen seventies or the nineteen nineties. 0:00:20.079 --> 0:00:23.119 We can't ignore the seventies or the post pandemic inflation 0:00:23.239 --> 0:00:26.280 run up, but we can't ignore the rest of history either. 0:00:26.520 --> 0:00:28.840 The Fed President Merry Daily joined us now for more. 0:00:28.880 --> 0:00:31.200 President Daddy, welcome back to the program. Always good to 0:00:31.200 --> 0:00:33.519 see you. Let's just start with that question that you 0:00:33.560 --> 0:00:36.960 ask yourself what's guiding your assessment of where we are. 0:00:37.520 --> 0:00:40.640 So I'm looking at both inflation and productivity. And if 0:00:40.680 --> 0:00:43.720 you look at inflation, you're seeing that it's been pretty 0:00:43.800 --> 0:00:47.279 contained so far in the goods prices which have been 0:00:47.280 --> 0:00:50.000 directly tariffed. And then you look at the other parts 0:00:50.000 --> 0:00:52.879 of inflation, you just don't see much of a run up. 0:00:52.920 --> 0:00:56.440 So that's good news, and inflation expectations what people expect. 0:00:56.200 --> 0:00:57.639 Remain very well anchored. 0:00:57.920 --> 0:01:00.920 Look at productivity and you see that activity is rising 0:01:00.960 --> 0:01:04.120 GDP growth is rising, while the labor market is slowing, 0:01:04.319 --> 0:01:06.039 So that tells me there's a little bit of that 0:01:06.160 --> 0:01:09.680 boost coming from firms looking to do more with less, 0:01:09.720 --> 0:01:12.039 but that's also causing a slow down in the labor market. 0:01:12.200 --> 0:01:15.160 So the fifty basis point adjustment we've made has helped 0:01:15.360 --> 0:01:19.240 support the labor market, but still keeps policy restrictive so 0:01:19.280 --> 0:01:21.120 that we can put downward pressure on inflation. 0:01:21.959 --> 0:01:24.760 President Daily, what are you looking at to determine whether 0:01:24.800 --> 0:01:27.000 it's the nineteen seventies the nineteen nineties. 0:01:28.200 --> 0:01:30.600 Well, I'm going to really look at things that improve 0:01:30.680 --> 0:01:33.560 productivity to think about the nineties, And it's more than 0:01:33.720 --> 0:01:37.280 just the stock market valuations for AI companies. It really 0:01:37.400 --> 0:01:40.319 is about the companies out there who might be using 0:01:40.360 --> 0:01:43.280 AI and then asking them, going directly to them and 0:01:43.319 --> 0:01:45.840 asking them, what's it doing for your bottom line and 0:01:45.880 --> 0:01:48.200 how are you using it? And what we're hearing are 0:01:48.240 --> 0:01:50.720 pretty encouraging, but very early signs. 0:01:50.920 --> 0:01:52.240 They see how it can help. 0:01:52.040 --> 0:01:54.880 Their bottom line, how can improve their productivity, even how 0:01:54.880 --> 0:01:57.640 they can be supportive of their workers, give them more 0:01:57.640 --> 0:02:00.560 interesting work, take the less interesting work away. But they 0:02:00.600 --> 0:02:02.720 all tell us it's early days, so more to come 0:02:02.760 --> 0:02:05.080 on that. And then on the inflation part, are we 0:02:05.120 --> 0:02:09.720 in the nineteen seventies, really asking employers and firms what 0:02:09.800 --> 0:02:12.480 are you doing with prices? Are you thinking about raising 0:02:12.560 --> 0:02:15.120 your prices? How are you going to think about losing 0:02:15.200 --> 0:02:18.000 volumes if you do so in a slowing economy, especially 0:02:18.080 --> 0:02:21.480 for consumers you know, from the fiftieth percentile down. And 0:02:21.560 --> 0:02:23.720 putting those two things together, I think we'll get a 0:02:23.720 --> 0:02:27.320 lot of clarity about which direction we're heading. And with policy, 0:02:27.520 --> 0:02:30.320 you know, been slightly adjusted, we are in a good 0:02:30.360 --> 0:02:33.240 place to continue to evaluate the information before we make 0:02:33.280 --> 0:02:34.080 any decisions. 0:02:34.200 --> 0:02:35.960 We can't know x Ante. 0:02:36.120 --> 0:02:38.040 Before the day to come out, and before we get 0:02:38.040 --> 0:02:40.800 that information really what we're facing. We just have to 0:02:40.840 --> 0:02:42.920 have an open mind about which one it could be 0:02:43.200 --> 0:02:44.600 and maybe other periods of history. 0:02:44.600 --> 0:02:45.639 I didn't even mention. 0:02:45.680 --> 0:02:48.639 President Daily how different would the neutral rate be if 0:02:48.680 --> 0:02:51.399 it were, say, more like the nineteen seventies or more 0:02:51.440 --> 0:02:54.640 like the nineteen nineties. Just how different would FED policy 0:02:54.680 --> 0:02:58.160 be in response to one or the other paradigm? 0:02:58.800 --> 0:03:01.600 Well, you know it, there's many nuanced ways it could 0:03:01.600 --> 0:03:03.640 affect the neutral rate. But I can back up from 0:03:03.680 --> 0:03:06.520 that and just ask what were the policy remedies if 0:03:06.520 --> 0:03:09.440 you think we're about to have an inflation run up. 0:03:09.720 --> 0:03:12.840 Then we obviously would have to hold policy tighter for 0:03:12.919 --> 0:03:16.560 longer because we wouldn't want that to occur. You know, honestly, 0:03:16.560 --> 0:03:20.600 Americans have endured already too much inflation, and we really 0:03:20.600 --> 0:03:22.880 need to get that back down to two percent to 0:03:23.000 --> 0:03:26.680 restore price stability, as we've committed to. On the other side, 0:03:26.800 --> 0:03:30.720 if it's productivity, you would start seeing the economy. 0:03:30.400 --> 0:03:32.120 Able to run a little bit longer. 0:03:32.400 --> 0:03:34.520 Maybe if you go back to the debates of the nineties, 0:03:34.680 --> 0:03:38.120 you know, we saw the labor market slow. Workers were insecure, 0:03:38.160 --> 0:03:41.080 but the labor market had unemployment that was fairly low, 0:03:41.440 --> 0:03:44.040 and many at the time were worried that could spur inflation. 0:03:44.600 --> 0:03:48.720 But Greenspan chairman green Span held on with his colleagues. 0:03:48.760 --> 0:03:51.400 They didn't raise rates. And what you saw was, you know, 0:03:51.480 --> 0:03:54.160 the nineties, which was a booming time, and we ended 0:03:54.640 --> 0:03:57.480 around target inflation and we had a productivity boom. So 0:03:57.520 --> 0:04:00.240 you're trying to balance those two things together, and it 0:04:00.320 --> 0:04:03.440 means not looking just at headlined information, but getting below 0:04:03.520 --> 0:04:07.760 that information, talking to firms, talking to consumers, talking to workers, 0:04:08.080 --> 0:04:10.480 really on the ground work, like we do at the 0:04:10.520 --> 0:04:12.800 reserve banks and other places. You know, the FED is 0:04:12.840 --> 0:04:15.160 built to do this on the ground work as well 0:04:15.160 --> 0:04:16.520 as look at the published data. 0:04:16.680 --> 0:04:19.200 President Daily reading the blog post this morning, it seems 0:04:19.240 --> 0:04:21.560 like you're leaning more toward the nineteen ninety side of 0:04:21.600 --> 0:04:23.520 things than in nineteen seventies. Is that right? 0:04:24.880 --> 0:04:25.080 Well? 0:04:25.120 --> 0:04:27.400 You know right now, you know, I'm in the West, 0:04:27.560 --> 0:04:30.479 in I have the nine states in the Western United States, 0:04:30.760 --> 0:04:33.760 and it's not just Silicon Valley that seems interested in AI. 0:04:34.040 --> 0:04:36.400 No matter who we talk to, whether they're you know, 0:04:36.480 --> 0:04:42.320 small businesses, medium or large businesses, manufacturing, tourism, etc. They're 0:04:42.480 --> 0:04:45.360 using AI in a way that they say is going 0:04:45.400 --> 0:04:49.000 to improve their productivity, and they're already seeing parts of it. 0:04:49.279 --> 0:04:51.279 So when I see that, I'm like, Okay, we need 0:04:51.320 --> 0:04:54.080 to think about that. What really will spur this is 0:04:54.120 --> 0:04:56.280 an ongoing thing, is if they start to change their 0:04:56.320 --> 0:04:57.280 business processes. 0:04:57.320 --> 0:04:59.080 So that's what I'm looking at now. 0:04:59.360 --> 0:05:01.760 That means, but I guess a different way to say 0:05:01.760 --> 0:05:04.279 that is we cannot take our eyes off inflation again. 0:05:04.560 --> 0:05:07.760 Americans have endured high inflation too long. That's our mandate. 0:05:08.000 --> 0:05:10.640 So while I'm looking for productivity gains and seeing if 0:05:10.640 --> 0:05:14.240 they're going to continue, I'm also keeping my eye completely 0:05:14.320 --> 0:05:16.960 focused on inflation to make sure that it doesn't pick 0:05:17.040 --> 0:05:19.320 up in a way that would suggest we need to 0:05:19.320 --> 0:05:21.080 do more or we need to hold longer. 0:05:21.200 --> 0:05:23.200 President Teddy, how would you respond to the criticism that 0:05:23.200 --> 0:05:25.600 the Federal Reserve as an institution has taken its high 0:05:25.839 --> 0:05:28.320 off inflation, that inflation is close to the three than 0:05:28.360 --> 0:05:29.960 it is the two, and the Fed's been kind of 0:05:30.000 --> 0:05:30.600 interest rates. 0:05:32.080 --> 0:05:34.479 You know, I don't think that if you unpack the 0:05:34.520 --> 0:05:37.640 inflation data you really see signs of that. It's true 0:05:37.640 --> 0:05:40.279 that headline inflation is printing at that level, but you 0:05:40.400 --> 0:05:43.279 have to take apart that inflation and ask how much 0:05:43.320 --> 0:05:45.920 of it is the effect of tariffs passing through the 0:05:46.000 --> 0:05:48.799 goods prices that we expect to be a one time 0:05:49.080 --> 0:05:52.560 price level adjustment and not a consistent run up in inflation. 0:05:52.640 --> 0:05:54.760 And if you unpack the data, what you see is 0:05:54.800 --> 0:05:57.960 you don't see inflation running up in services or housing, 0:05:58.160 --> 0:06:01.920 and importantly, you don't see it's reading into inflation expectations 0:06:02.160 --> 0:06:04.160 that would be the thing that would continue to run 0:06:04.240 --> 0:06:07.040 up inflation going forward. We also see a labor market 0:06:07.080 --> 0:06:09.880 that's softening, in wage growth that is moderating, so you're 0:06:09.920 --> 0:06:12.279 really not going to see a lot of pressure coming on. 0:06:12.160 --> 0:06:13.320 The cost side of labor. 0:06:13.640 --> 0:06:15.880 So I put those things together, and we don't want 0:06:15.880 --> 0:06:18.320 to make the mistake of holding on too long for 0:06:18.440 --> 0:06:20.719 rates only to find out we injure the economy. 0:06:20.839 --> 0:06:22.480 President any can we just pick up on the cost 0:06:22.520 --> 0:06:25.400 of labor. I think this is really important right now, clearly, 0:06:25.839 --> 0:06:27.599 and it's hard to dispute this. It's in the data. 0:06:27.600 --> 0:06:29.680 We've had a massive step down and pay rolls growth. 0:06:30.080 --> 0:06:33.320 What's behind that is a little bit more confusing. Is 0:06:33.360 --> 0:06:36.359 it demand? Is it cyclical, is it structural? Is it 0:06:36.400 --> 0:06:39.800 something else like immigration? What's your talent right now? What 0:06:39.800 --> 0:06:42.200 can you point to that helps telling you it's one 0:06:42.200 --> 0:06:43.000 thing over the other. 0:06:44.400 --> 0:06:47.520 Yes, you look at prices in this case, the price 0:06:47.560 --> 0:06:51.279 of labor as wages. If it was simply about supply 0:06:51.760 --> 0:06:55.240 and firms were still scrambling to find workers to fill 0:06:55.279 --> 0:06:58.920 what was jobs that were supported by the previous immigrants, 0:06:59.279 --> 0:07:01.680 you would find wages going up as they bid for 0:07:01.760 --> 0:07:03.360 workers to try to fill those jobs. 0:07:03.400 --> 0:07:04.800 But that's actually not what you see. 0:07:04.960 --> 0:07:08.680 You see wage growth slowing even in sectors where immigration 0:07:08.839 --> 0:07:09.840 played a larger role. 0:07:10.120 --> 0:07:12.680 And so that to me says it's. 0:07:12.520 --> 0:07:15.560 A demand shock, a negative demand shock along with just 0:07:15.840 --> 0:07:20.160 a coincidental negative supply shock, so you lost workers, but 0:07:20.320 --> 0:07:22.480 you lost jobs at the same time, or you had 0:07:22.640 --> 0:07:26.680 job growth slowing, and what we're seeing now does that 0:07:26.760 --> 0:07:29.520 continue to net out right? What if the supply of 0:07:29.560 --> 0:07:32.080 workers doesn't keep going down but the demand for workers 0:07:32.120 --> 0:07:34.720 does well, then we'd end up with a rise in unemployment. 0:07:34.800 --> 0:07:37.760 So have to keep squarely focused on those types of things. 0:07:37.800 --> 0:07:42.000 We're definitely in a low firing, low hiring period and 0:07:42.320 --> 0:07:45.680 interrogating that labor market, continuing to watch the information, see 0:07:45.720 --> 0:07:46.760 what firms do next. 0:07:47.000 --> 0:07:48.600 That's going to be the important part. 0:07:48.680 --> 0:07:50.360 And it's something that a lot of people have said, 0:07:50.520 --> 0:07:53.080 really is the case shape the idea that, particularly on 0:07:53.080 --> 0:07:55.880 the lower end, you have not seen wages keep pace 0:07:56.320 --> 0:07:58.600 with the rest of the income spheres. 0:07:58.760 --> 0:08:00.680 I just wonder, though, how much we. 0:08:00.680 --> 0:08:03.400 Are seeing a massive amount of inflation and acid prisis 0:08:03.680 --> 0:08:07.000 and how that feeds into what you're looking at, especially 0:08:07.000 --> 0:08:09.480 at a time that may rhyme with the nineteen nineties, 0:08:09.480 --> 0:08:11.960 and we know what happened after the nineteen nineties. How 0:08:12.040 --> 0:08:12.880 much do you weigh that? 0:08:13.040 --> 0:08:14.840 How much do you have to pay attention? 0:08:16.320 --> 0:08:17.680 Well, you know one of the things that you do, 0:08:18.200 --> 0:08:22.040 so financial market conditions are one input into our decision making, 0:08:22.360 --> 0:08:24.600 one of many inputs. You know, we have two goals, 0:08:24.640 --> 0:08:26.960 price stability, full employment. We're trying to think about what 0:08:27.040 --> 0:08:31.760 inputs affect those two variables, those two goals. But what 0:08:31.920 --> 0:08:35.000 I look at is if you look under the valuations, 0:08:35.200 --> 0:08:37.520 you know, people are really talking about one of two things. 0:08:37.720 --> 0:08:41.040 This is going to be a transformative technology. AI is 0:08:41.080 --> 0:08:43.199 going to change the world to be like electricity or 0:08:43.240 --> 0:08:44.199 the steam engine. 0:08:44.280 --> 0:08:46.840 And then the people who are a little more skeptical. 0:08:46.440 --> 0:08:48.920 Are saying it's going to be a business as usual technology. 0:08:48.920 --> 0:08:51.360 You think of computers in the Internet. The thing that's 0:08:51.400 --> 0:08:54.240 true about both of those is they're both productive. You 0:08:54.280 --> 0:08:57.240 get productivity from both of those. They both help with growth, 0:08:57.480 --> 0:09:01.080 they both help the pie and the expand And so 0:09:01.360 --> 0:09:04.320 we're not talking about a bunch of ideas with no backing. 0:09:04.360 --> 0:09:08.480 We're talking about, you know, equity investors, not highly leveraged 0:09:08.960 --> 0:09:12.360 going in and making banking bets really on whether it's 0:09:12.400 --> 0:09:15.320 going to be transformative or business as usual. But everybody 0:09:15.320 --> 0:09:17.840 agrees on one thing, it will change productivity. 0:09:18.120 --> 0:09:20.480 At the same time, President Daily some people would suggest 0:09:20.520 --> 0:09:23.079 that yes, you will see stocks continue to go up 0:09:23.240 --> 0:09:25.840 in the face of another rate cut, But at the 0:09:25.840 --> 0:09:29.800 same time, the transmission mechanism of the additional cuts are 0:09:29.840 --> 0:09:32.640 slower to take place. It's less efficient in terms of 0:09:32.679 --> 0:09:35.000 the pass through just based on how much lending there is, 0:09:35.040 --> 0:09:38.200 whether it's in the private lending sphere or beyond. How 0:09:38.200 --> 0:09:40.480 do you measure these things at a confusing moment? 0:09:41.760 --> 0:09:44.800 Well, you know, I guess this argument that we've somehow 0:09:44.920 --> 0:09:48.520 lost our power monetary policy doesn't transmit. I simply don't 0:09:48.520 --> 0:09:50.880 see it in the information. If you go out and 0:09:50.920 --> 0:09:54.200 you look at what happened when inflation was running really, 0:09:54.240 --> 0:09:58.400 really high, we raised rates pretty aggressively, and mortgage interest 0:09:58.480 --> 0:10:02.720 rates rose rapidly. Car rates rose rapidly, and the economy slowed. 0:10:02.720 --> 0:10:05.440 Inflation came down. Right now, what I'm seeing is we 0:10:05.480 --> 0:10:08.800 adjust rates, mortgage interest rates come down, not one for one, 0:10:09.040 --> 0:10:11.280 that's not how it works. Usually is less than one 0:10:11.320 --> 0:10:13.280 for one, but they come down. You see a little 0:10:13.320 --> 0:10:15.760 more activity in the housing market, you see a little 0:10:15.760 --> 0:10:19.080 more activity in the borrowing market more generally, and you 0:10:19.120 --> 0:10:22.320 see that dynamic work. So I guess the most important 0:10:22.320 --> 0:10:24.760 thing is just to remember that montary policy acts with 0:10:24.800 --> 0:10:27.280 a lag, and right now we're making decisions not just 0:10:27.280 --> 0:10:29.480 for what's going to happen next week, but what's going 0:10:29.520 --> 0:10:31.360 to happen in the next six months to a year. 0:10:31.640 --> 0:10:33.360 So that's how we have to think about it with 0:10:33.480 --> 0:10:36.760 our forecasts, and then how we adjust policy as those 0:10:36.800 --> 0:10:37.680 forecasts evolve. 0:10:37.840 --> 0:10:40.160 How frustrating has it been not to get government data? 0:10:41.920 --> 0:10:45.079 You know, I really want the information, the fullest amount 0:10:45.120 --> 0:10:47.440 of information we can possibly get. But one of the 0:10:47.480 --> 0:10:52.280 things that I think maybe underestimated in public about what 0:10:52.320 --> 0:10:55.800 the FED does is we're regularly relying on government provided 0:10:55.880 --> 0:10:58.200 data that's the gold standard of data in the world. 0:10:58.520 --> 0:11:01.280 We're also relying on private sector surveys which have been 0:11:01.320 --> 0:11:04.800 collected for many, many years, and we can correlate them 0:11:04.559 --> 0:11:07.720 with the government collected data over time and know exactly 0:11:07.960 --> 0:11:10.080 how they relate to one another. And then of course 0:11:10.120 --> 0:11:13.839 there's really no replacement, especially at inflection points in the economy, 0:11:14.160 --> 0:11:20.520 for talking to businesses, workers, communities, and consumers, asking people 0:11:20.559 --> 0:11:21.560 what they're really doing. 0:11:21.800 --> 0:11:22.679 And then you know, I. 0:11:22.720 --> 0:11:24.599 Like to do this, go to the parking lots of 0:11:24.640 --> 0:11:27.360 your favorite retail stores and look at how many cars 0:11:27.360 --> 0:11:29.200 are in the parking lot and what people are buying. 0:11:29.480 --> 0:11:32.520 That tells you a lot, you know, airports are are full. 0:11:32.840 --> 0:11:34.959 People are out there. You can go to you know, 0:11:35.120 --> 0:11:37.080 go to a sporting event or a concert, see how 0:11:37.080 --> 0:11:39.520 many people are there. What you see as an economy 0:11:39.520 --> 0:11:42.600 that is slower than it was, consumers that are not 0:11:42.840 --> 0:11:45.240 they're more picky about what they spend on, but they're 0:11:45.280 --> 0:11:48.040 still out there participating in the economy. And that's how 0:11:48.080 --> 0:11:50.400 we get the information we need to make the right 0:11:50.440 --> 0:11:53.400 decisions that are according to our mandates, but mostly for 0:11:53.480 --> 0:11:54.920 the American people presidentially. 0:11:55.000 --> 0:11:56.920 You've been working with the FED or on the FED 0:11:57.440 --> 0:11:59.960 Committee for a long long time on these in these debates, 0:12:00.160 --> 0:12:02.600 have you ever seen it more divided than it is 0:12:02.720 --> 0:12:03.080 right now? 0:12:03.080 --> 0:12:05.880 On the FMC? He knows, of course. 0:12:06.280 --> 0:12:07.600 I mean look at that, if you look at the 0:12:07.600 --> 0:12:10.120 transcripts and the meeting minutes, and you know it's helpful. 0:12:10.200 --> 0:12:12.320 Go back and look at the nineteen nineties debates, and 0:12:12.360 --> 0:12:15.319 go back and look at the commentary around the nineteen seventies. 0:12:15.600 --> 0:12:18.600 You know, it is a misnomber to think people always 0:12:18.600 --> 0:12:21.240 agree the right way to think about it. In my judgment, 0:12:21.280 --> 0:12:24.080 this has been my experience, is that the debate we 0:12:24.200 --> 0:12:26.800 have I wouldn't even call a division. I would call 0:12:26.840 --> 0:12:29.400 it differences. Of opinion that are really healthy in a 0:12:29.440 --> 0:12:32.680 debate about trying to make policy in an uncertain time. 0:12:32.800 --> 0:12:35.160 With no truth. We don't have truth. 0:12:35.240 --> 0:12:39.400 We have forecasts, we have our best estimates. We have 0:12:39.640 --> 0:12:42.120 taking the evidence and then taking it again and looking 0:12:42.120 --> 0:12:45.160 through it with different lenses. I see that as a 0:12:45.160 --> 0:12:47.800 strength of the committee, a strength of the Federal Reserve, 0:12:48.160 --> 0:12:52.079 and importantly is it is delivering the best possible decisions 0:12:52.120 --> 0:12:55.880 we can make. So I have seen this many times before, 0:12:56.080 --> 0:12:58.240 and I think it's always at inflection points that you 0:12:58.280 --> 0:13:01.520 see the broadest amount of dis agreement, and it's exactly 0:13:01.600 --> 0:13:04.280 what I hope people would want from a committee making 0:13:04.320 --> 0:13:07.640 decisions on inflation and full employment. It really does help 0:13:07.720 --> 0:13:10.559 us make sure that we're doing the best we possibly can. 0:13:10.840 --> 0:13:12.720 So you're happy to confirm on the records you have 0:13:12.760 --> 0:13:15.160 not seen Governor Maron and President Smith in a fight 0:13:15.480 --> 0:13:17.760 in the sea day meeting. Can we confirm that President 0:13:17.840 --> 0:13:19.440 Daily today that hasn't happened. 0:13:21.000 --> 0:13:23.560 You always try, and yet I'm not a rookie. 0:13:24.440 --> 0:13:25.440 Marry Daily, thank you. 0:13:25.600 --> 0:13:26.760 That's always good to see you.