Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Turning to the Federal Reserve cunning interest rates by another
Speaker 2: twenty five basis points this month, but signaling the path
Speaker 2: is unclear for twenty twenty five, Fedchaed J. Powell saying
Speaker 2: he feels good about the economy, but we are in
Speaker 2: a new phase in the fight against inflation. Pleased to
Speaker 2: say they're joining us around the table alongside Mike m
Speaker 2: Key and us is the San Francisco Fed President, Mary Daily,
Speaker 2: President Daily. It's good to see you, Nice to see you.
Speaker 2: Thank you for giving us some time. Let's start with
Speaker 2: the forecast. Some controversy around the forecast. I'll go through
Speaker 2: the controversy. We don't speculate, we don't assume, we don't guess.
Speaker 2: And then a month later it found like there was
Speaker 2: some speculation and some guessing about policy next year. I
Speaker 2: just want to talk about your approach to the forecast.
Speaker 2: Was it about the data for you? Or was it
Speaker 2: about the incoming administration?
Speaker 3: It's about the data. It's always about the data for me.
Speaker 3: We don't know what the incoming administration is going to do.
Speaker 3: You know, new administrations, no matter when they come, always
Speaker 3: put a slate of programs together, and really, as a
Speaker 3: policy maker, I look at I want to see the
Speaker 3: net net effects once I see clarity about what those
Speaker 3: policies will be. So I was focused on the incoming
Speaker 3: information and what it means for the outlook. And today
Speaker 3: I feel like we've got policy in a good place,
Speaker 3: the economy is in a good place, and we are
Speaker 3: prepared for whatever comes before us.
Speaker 1: What happened in the past three months that caused the
Speaker 1: FED and perhaps yourself to be much more concerned about
Speaker 1: the stickiness and inflation.
Speaker 3: Well, the data happened, and you look at the data,
Speaker 3: and what's happened is that there's two things that have occurred.
Speaker 3: First of all, the economy remains in a good place,
Speaker 3: and the risks to the outlook are equally balanced between
Speaker 3: a risk to inflation or a risk to employment. That's
Speaker 3: where we wanted our goals to be. And we adjusted
Speaker 3: policy when we had confidence that inflation was heading down,
Speaker 3: and we adjusted policy some more to ensure that we
Speaker 3: have a balanced labor market that continues. So that's where
Speaker 3: we are. But then the data on inflation have been
Speaker 3: coming in a little slower. I wouldn't even say sticky
Speaker 3: or stalled. I would say the progress is just slowed
Speaker 3: relative to what we had wanted. But that's a typical pattern.
Speaker 3: It's bumpy as you get to the you know, from
Speaker 3: point five or two point eight to two it's just
Speaker 3: a bumpy path. This okay, go ahead.
Speaker 1: At the same time, some people were wondering if there
Speaker 1: was the stickiness. And I'm looking right now at say
Speaker 1: the Cleveland CPI now and it actually has ticked up
Speaker 1: for the month of December from November. There was this question,
Speaker 1: why did the FED cut it all?
Speaker 3: Sure, and again I'm going to reassert that it's bumpy.
Speaker 3: You know, remember earlier in the year we had two
Speaker 3: months of data and people said, oh my gosh, it's reaccelerating,
Speaker 3: and then we had it come down. So inflation data
Speaker 3: can't you can't focus on one month or two months.
Speaker 3: The most important thing for me was that we needed
Speaker 3: to recalibrate policy. I saw this as a close call.
Speaker 3: You know, I was seventy five enough to be the recalibration.
Speaker 3: We were looking for right size policy to meet the
Speaker 3: economy we expect, or do we need more. Ultimately, I
Speaker 3: determined that the one hundred basis points was really the
Speaker 3: right level. Now I feel we've got that recalibration phase
Speaker 3: behind us and we're in the next phase. And the
Speaker 3: next phase is really looking at the incoming information. We
Speaker 3: can return to a more typical pattern of gradualism for
Speaker 3: the fad you know we've been we've practiced that where
Speaker 3: you with a lot of uncertainty, you adjust the policy rate,
Speaker 3: then you wait watchfully and you see what transpires, and
Speaker 3: then you make further adjustments. That's the phase I think
Speaker 3: we're now entering.
Speaker 4: From September, the expectation in the markets was going into
Speaker 4: every meeting that you'd be cutting Has that changed now?
Speaker 4: Should the expectation be that you won't be doing anything
Speaker 4: at any particular meeting? And from that question flows a
Speaker 4: second question, what are the criteria that you need to
Speaker 4: see to decide to go back to cutting rates?
Speaker 3: Well, as you saw from the SEP the median projection
Speaker 3: is to rate cuts next year, so that's already not
Speaker 3: in every meeting or every other meeting. That's two rate cuts.
Speaker 3: I was very comfortable with that meeting, and that makes
Speaker 3: sense to me. But we have to agile. I mean,
Speaker 3: you know, the thing that's got us here is being
Speaker 3: resolute to achieve our dual mandate goals. Price stability was
Speaker 3: our focus when inflation was very high. The employment has
Speaker 3: come into the frame so that we're focused on both.
Speaker 3: But then we also have to be agile. You know,
Speaker 3: the world is uncertain, so we pencil into and you know,
Speaker 3: as that estimate or that projection gets further from when
Speaker 3: we made it, the accuracy of it probably falls. And
Speaker 3: so we're just going to continually take in more information,
Speaker 3: consider it, and every meeting your listener should think about this.
Speaker 3: Every meeting is live from the standpoint that you're debating,
Speaker 3: you're discussing, you're thinking what's the right level of policy.
Speaker 3: But my projection is that it will take much many
Speaker 3: fewer rate cuts next year than we thought. But I'll
Speaker 3: watch the economy and see if that works out.
Speaker 4: When we went into the cutting cycle, you were out
Speaker 4: front and saying you were concerned about the labor market
Speaker 4: and that we needed to make sure that we didn't
Speaker 4: lose the gains that we had. Now, at least coming
Speaker 4: out of Chairman Powell's press conference, it sounds like the
Speaker 4: focus has shifted to inflation again. Are you comfortable with
Speaker 4: that as this new phase that he's talking.
Speaker 3: About, Well, I think of it as a new phase
Speaker 3: as well, and I would characterize it slightly differently. I
Speaker 3: would say that for a long time, a persistent amount
Speaker 3: of time protracted, we were focused almost entirely on inflation.
Speaker 3: That's because the labor market was quite robust and inflation
Speaker 3: was seven six ' five. That was the right way
Speaker 3: to focus. Then the labor market came into the frame.
Speaker 3: That didn't mean we turned our focus totally to it.
Speaker 3: It just meant that after a long period of focusing
Speaker 3: only on inflation, we were now focused on both. I
Speaker 3: think that is still the case, but I see policy
Speaker 3: as already in that position where it's supporting both. That
Speaker 3: policy is restrictive. It's going to continue to bring inflation down,
Speaker 3: and it's going to do so in a way that
Speaker 3: doesn't strangle the labor market, break it and then give
Speaker 3: people lower price, lower inflation, but take their jobs. And
Speaker 3: that's not what we're trying to do. We're really working
Speaker 3: towards that soft landing.
Speaker 2: Mat Now you've used the word we a lot when
Speaker 2: you talk about what's happening in the Federal Reserve. We've
Speaker 2: had some people who are quite critical of the Federal Reserve,
Speaker 2: and Chairman Pouse performance specifically in this news conference. One
Speaker 2: excuse that was given was that maybe he was struggling
Speaker 2: to reflect the lack of a consensus on the committee.
Speaker 2: How much diversity of thought disagreement is there on the committee?
Speaker 2: You call it a close call for yourself, but was
Speaker 2: there some disagreement on the committee at this meeting?
Speaker 3: Well, you know, I'm not going to speak about the
Speaker 3: entire committee when I say, focused on the things we
Speaker 3: all agree on, which is price stability and full employment,
Speaker 3: on our efforts to get there. You know, what I
Speaker 3: would offer is that we have, in my mind, the
Speaker 3: healthy level of discussion and disagreement. You know, you don't
Speaker 3: want an FMC that things exactly alike. And I believe
Speaker 3: that what people are looking at is the fact that
Speaker 3: now the world is more uncertain and people are debating
Speaker 3: and bringing in their views. And that's appropriate. When it
Speaker 3: was a pandemic and there was only one direction that
Speaker 3: we were interest rates, we had to do it quickly.
Speaker 3: It was obvious everyone agreed. When inflation's high, there was
Speaker 3: no disagreement. Right, we're all merging up. Now. You should
Speaker 3: expect more disagreement, more differences of opinion, but they're always
Speaker 3: framed to the same thing, how do we get inflation
Speaker 3: to do and restore or keep full employment.
Speaker 2: When I hear the world is more uncertain a lot
Speaker 2: of people here, Well, that's not about the data, that's
Speaker 2: about the incoming administration.
Speaker 3: I would disagree. Why would you disagree, because we have
Speaker 3: a variety of risks that are the ones we always
Speaker 3: deal with. Right the housing inflation. Right now, there's a
Speaker 3: substantial housing imbalance in the United States. The models, in
Speaker 3: our data and our past experience, I'll say housing inflation
Speaker 3: will come down, but we are uncertain about that. Right.
Speaker 3: It hasn't come down as quickly as the models would
Speaker 3: have predicted, and so that's an issue. The labor market
Speaker 3: and consumer spending and growth are much faster and stronger
Speaker 3: than people would have predicted at this point. Given the
Speaker 3: titaning we've done. There's a lot of uncertainty about the
Speaker 3: natural rate of interest, where's the stopping point? And then
Speaker 3: of course there's geopolitical risks, the risks of global growth.
Speaker 3: That's going to be the backdrop. And then you have
Speaker 3: a change in administration. So I would say this level
Speaker 3: of uncertainty is normal in the sense that we've had
Speaker 3: all those things going on, and it's not as excessive
Speaker 3: uncertainty as after the pandemic, the financial crisis. Those were
Speaker 3: really big periods of uncertainty. So I think if you're
Speaker 3: a central banker, you just get used to uncertainty and
Speaker 3: you manage.
Speaker 1: It before we get into what some of the uncertainty
Speaker 1: about next year could look like. I am curious about
Speaker 1: how you're weighing how to preserve the job gains with
Speaker 1: the risk of running the economy for too long. And
Speaker 1: that's I think something people are struggling with. Is there
Speaker 1: an emphasis on the labor market even at the behease
Speaker 1: of inflation, just because it's been deemed better for inflation
Speaker 1: to be a little hotter as long as people keep
Speaker 1: their jobs.
Speaker 3: Yeah, I would characterize it a little differently, But that
Speaker 3: is a terrific question. So when we spend you know,
Speaker 3: as you know, reserve bank presidents spend a lot of
Speaker 3: time in the field work in our district, I have
Speaker 3: the whole Western United States, And so I ask people
Speaker 3: the question, you know, where are you on this? And
Speaker 3: again and again I hear that the economy is sort
Speaker 3: of in a good place right. Inflation's coming down, it's gradual,
Speaker 3: and the labor market is solid, but there's one job
Speaker 3: for every unemployed worker. You know, that's in perfect balance.
Speaker 3: And our firms are saying we can find workers, and
Speaker 3: our workers are saying we can find jobs, and no
Speaker 3: one really wants that to break. So what people do
Speaker 3: not want is a recession. And I think one of
Speaker 3: the reasons sentiments been rising since the middle of this
Speaker 3: year is because the recession risk is now behind us
Speaker 3: in people's minds, and they feel good about that. So
Speaker 3: what I hear more than you would think is don't
Speaker 3: get one tenth off inflation just and then break the economy.
Speaker 3: That's like, we can be patient, but you just have
Speaker 3: to head for two and we don't want the economy
Speaker 3: to break.
Speaker 1: That's why I thought it was interesting that the inflation
Speaker 1: forecast for next year was shifted upward even at a
Speaker 1: time where the unemployment rate was shifted downward. There was
Speaker 1: a sense that that was okay to tap two and
Speaker 1: a half percent inflation at the end of next year,
Speaker 1: even though it was above two percent. Is that the
Speaker 1: sort of feeling right now on the FED to be
Speaker 1: more patient with inflation because it's thought of as less
Speaker 1: punitive at a level below three percent. Than say, arise
Speaker 1: in unemployment.
Speaker 3: Well, let me just say how I think about it,
Speaker 3: because here I will speak for myself. I'm not comfortable
Speaker 3: with the rate of inflation being two point five, but
Speaker 3: we're continuing to work on it, and so we might
Speaker 3: end up cutting rates cutting rates less if inflation is
Speaker 3: as sticky as that. But what I'm also balancing is
Speaker 3: I don't want to see an unnecessary rise in the
Speaker 3: unemployment rate just to get a quarter ahead on the
Speaker 3: two percent goal. So that is a balancing act. And
Speaker 3: I think ultimately we were just looking at the information
Speaker 3: coming in and saying, you know, there's a lot of
Speaker 3: risks out there. Inflation could rise, but you'll see the
Speaker 3: inflation rising was a partly why you saw the rate
Speaker 3: cuts pulling back is absent the if we had four
Speaker 3: you'd see inflation go up more. And so this is
Speaker 3: a balancing act. But I think it also points you
Speaker 3: to the dispersion that you saw in the SEPA, which
Speaker 3: I see as a feature, not a bug. You should
Speaker 3: have some dispersion when the world's uncertain, Otherwise you would
Speaker 3: wonder if we're all in an echo chamber. But we're not.
Speaker 3: You can see that clearly and you see the dispersion,
Speaker 3: and I think that dispersion really represents what we're facing.
Speaker 3: We might end up with fewer cuts than two. We
Speaker 3: might have to respond and end up with more if
Speaker 3: inflation falls faster or you see a significant weakening in
Speaker 3: the labor market. And I'm comfortable sitting in that center
Speaker 3: court position and waiting for the data to come in
Speaker 3: and we'll actually respond as they do.
Speaker 4: Well, do you think there's any chance that you might
Speaker 4: have to raise rates next year?
Speaker 3: You know, I don't see that on the horizon right now,
Speaker 3: but if we will always remain prepared to do what
Speaker 3: it's needed to achieve our goals. But I don't see
Speaker 3: that in the span of the most salient risks right
Speaker 3: now that I faced. But you know, absolutely that's something
Speaker 3: that we never take off the table.
Speaker 2: Who owns the dealt with no cunts? Next year? Come on, reveal,
Speaker 2: Who's is that?
Speaker 3: Twenty twenty five reveal?
Speaker 2: Salas.
Speaker 3: No, I'm not going to tell you. I'm not rookie.
Speaker 3: You know, I know it's not a holiday gift. I'm
Speaker 3: willing to give gifts.
Speaker 1: I'm just checking reveal.
Speaker 2: President Day is going to stick with it someplace to
Speaker 2: say thank you, Mia Kay, thank you as well, Sir
Speaker 2: President Mary Danny is still with US. President Daidy, you
Speaker 2: were all about the data, not about the administration change.
Speaker 2: We do want to talk to you about how you
Speaker 2: would approach changes in policies from the incoming administration though
Speaker 2: across many dimensions immigration taxes, but the big one I
Speaker 2: think for many tariffs, what's your approach going to be
Speaker 2: next year?
Speaker 3: So we have all the tools and evidence from prass
Speaker 3: historical periods, we can think about how these things will
Speaker 3: affect the economy. You know, one of our biggest tools
Speaker 3: of figuring out how things will affect the economy is
Speaker 3: talking to CEOs of small, medium, and large companies, and
Speaker 3: we've already engaged in doing that. So when we're out
Speaker 3: there in the field talking to people from across the country,
Speaker 3: and I'm spending my time in the twelfth district, we're
Speaker 3: hearing that their sentiment is up. They're really optimistic that
Speaker 3: they've been cautiously optimistic. They see the Fed's interest rate
Speaker 3: path falling and they feel good about that. They see
Speaker 3: the economy as the procession risk is behind us, and
Speaker 3: they feel positive in general about some of the things
Speaker 3: that they think may change going forward. Now, whether that
Speaker 3: materializes or not, we will wait and see. But I
Speaker 3: feel that sentiment alone is causing us to have some enthusiasm,
Speaker 3: some cautious enthusiasm, if you will. One thing that we
Speaker 3: hear is that for firms that are worried about the
Speaker 3: immediate impacts of tariffs on their business, they're just building
Speaker 3: up some inventory so that they can have some insurance.
Speaker 3: And so that's something you'll start to see in the
Speaker 3: data already, but I haven't seen that in such an
Speaker 3: outsized way that I think it's going to change the
Speaker 3: course of the economy.
Speaker 1: One thing that you say President daily is that we
Speaker 1: have experienced from the past of tariffs, of some of
Speaker 1: the immigration bands or limits, but is this time more
Speaker 1: difficult just because of where we're coming from. It is
Speaker 1: a more inflationary time after a pretty big stimulus package
Speaker 1: injected into the economy.
Speaker 3: You're feeling like an economist, like when you think of
Speaker 3: state dependence, right, The impacts of policies affect are affected
Speaker 3: by the state of the economy. So one thing that
Speaker 3: is on my mind is that we already have inflation
Speaker 3: above two percent, and so we have to work hard
Speaker 3: to get inflation down to two percent, and that is
Speaker 3: an economy that's just a little more vulnerable than it
Speaker 3: would be if we had inflation, you know, at two percent,
Speaker 3: or when we came in to the tariff discussion or
Speaker 3: trade discussions last time, it was below two percent. So
Speaker 3: I feel, on the other side, the real side of
Speaker 3: the economy is very is very strong or solid, and
Speaker 3: so we're in a good position. But it does it
Speaker 3: is on my mind, and inflation is already elevated.
Speaker 1: Well, does that make it that tariffs are more likely
Speaker 1: to be inflationary than they have?
Speaker 3: And it's really hard to sa. I mean, one of
Speaker 3: the things you learned from doing this kind of a
Speaker 3: job at while is that it really depends on the scope, magnitude,
Speaker 3: timing of tariffs and whether our companies in the United
Speaker 3: States are positioned to use substitutes and manage and you
Speaker 3: see this happening. We already went through. Another feature that
Speaker 3: might make it less challenging is that in the pandemic,
Speaker 3: firms reshored, near shored, friendshured, and you saw a lot
Speaker 3: of that behavior already taking place. So we'll see we
Speaker 3: just have about a minute.
Speaker 1: But in being agile, how concerned are you that people
Speaker 1: are going to label decisions as political.
Speaker 3: I don't feel concerned about that. I think what we've
Speaker 3: done well and is talk to the American people. That
Speaker 3: chair does that in meetings. We do that, and we're
Speaker 3: telling them we are only focused on inflation and full employment.
Speaker 3: Those are the goals Congress gave us. We're going to
Speaker 3: do our best to navigate the incoming information, whatever causes it,
Speaker 3: and make the good decisions, make the best posicians, and
Speaker 3: then be humble about having made the wrong one or
Speaker 3: the right one and redo it so and think about
Speaker 3: it again. So that's how we're going to approach it,
Speaker 3: and I think ultimately people will judge us by whether
Speaker 3: we're successful.
Speaker 2: You've been generous with your time this morning. We appreciate it,
Speaker 2: enjoyed the holidays. Happy to thank you. I was Mary
Speaker 2: Daddy there, the San Francisco Fed President,