February 7, 2023

Below is the transcript of an interview with Mary Daly, President and CEO of the Federal Reserve Bank of San Francisco, which aired Sunday, August 7, 2022, on “Face the Nation.”

Margaret Brennan: We now turn to the state of the economy and the president of the Federal Reserve Bank of San Francisco, Mary Daly. good morning to you.

Federal Reserve Bank of San Francisco, President Mary Daly: Good morning.

Margaret Brennan: The San Francisco Fed said that during the entire pandemic, fiscal spending all congressional funding contributed 3% – a 3% increase in inflation. Do you expect the Congressional bill that is about to approve it to add to inflation as well?

Daly: Well, let’s remember that during the time that there was this fiscal easing during the pandemic, there was also monetary policy easing. And those things were necessary to get through the epidemic. That’s why this was such an important element of history, it would be judgment, whether it was too much or too little. But now, this is where that was. The staff has evaluated it. As I look forward, there are a lot of things that are happening in the economy right now, both locally and globally. We are struggling with high inflation. But the Fed is committed to reducing that. And we don’t just look at the things Congress passes, but what’s happening around the world as well.

Margaret Brennan: Do you think this bill will increase inflation? Has inflation peaked? Can you say that?

Daly: You know, I can’t really comment on pending legislation, and it’s really hard to say because all the details aren’t set yet or the timeframe in which these things are going to happen. So I think now the most important thing, Margaret, is that inflation is very high and the labor market is strong. The global economy suffers from a constant rise in inflation, and that’s what I focus on.

Margaret Brennan: You’re a business economist. We had this surprisingly strong number of jobs on Friday. Why was it so surprising? What are economists missing here? What was your takeaway?

Dali: You know, it’s a lot of fun. As you know, this surprised everyone who tries to find out the exact number. And we, you know, had a number of easy-going expectations. But, you know, frankly, if you’re out in the communities, if you’re traveling anywhere, you’re just in your own community. I don’t think consumers are workers or that companies are surprised. There are signs needed for help everywhere. People can find multiple jobs if they want to. Job search times are not long. So I think the job market continues to advance. It just tells me that people want to work and that they want to be hired. But the global truth is that inflation is very high.

Margaret Brennan: But is it still or is it implying that the recession is not where we are or where we are going?

Daly: If you’re outside the economy, you don’t feel like you’re in a recession. This is the point. The most important risk there is inflation. And I think the job market confirms that.

Margaret Brennan: Right. We’ll take a break and get back with you. Mary Daly, stay tuned. We have more questions.

*commercial break*

Margaret Brennan: Welcome back to facing the nation. We now continue our conversation with Mary Daly, president of the Federal Reserve Bank of San Francisco. In this jobs number on Friday, we also saw that wages are up, but not rising as fast as inflation. How concerned are you that this shows that inflation is becoming such an integral part of the economy in a way that it will really force your colleagues at the Federal Reserve to keep raising interest rates.

Daly: You know, I don’t see inflation being an integral part of the economy, the kinds of things we worry about that we can’t easily correct. What I see is that supply and demand are out of balance. About 50% my office estimates the excess inflation we’re seeing is demand-related. The remaining 50% to supply. The Fed is really well positioned to cut demand, and we’re already seeing a chill taking shape in the housing and investment market. So I see signs that the economy is cooling. It will take some time for our interest rate adjustments to work their way. And we’re still far from finished. This is the promise to the American people. We are far from finished. We are committed to lowering inflation and will continue to work until this task is fully completed.

Margaret Brennan: So, would it be appropriate to raise interest rates in September by half a percent?

Daly: Absolutely. And we have to be data dependent. maybe. We need to leave our minds open. We have two more inflation reports coming out, another jobs report. We keep collecting all the information from the context we’re talking to you in to see how this works its way through the economy. But you mentioned, you know, wage growth is just above 5% inflation. Last print 9.1%. Americans are losing ground every day. So the focus should be on lowering inflation.

Margaret Brennan: One of the things the Fed can’t control is geopolitical risk. How worried are you about what is happening in the Taiwan Strait now?

Daly: Well, there’s a lot going on globally, and I think that’s something we really need to think about. It’s just getting through COVID, making sure that the new variables don’t get in the way of economic activity. We have central banks all over the world raising interest rates to try to rein in their own inflation. And we have constant developments that happen geopolitically or in general between countries and all of these things. The war in Ukraine, all of these things are creating headwinds, if you will, for the American economy and we will have to lean against those headwinds for growth while we curb inflation.

Margaret Brennan: The Fed is done and I know we’ll talk again. Thank you very much, Mary Daly.

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