March 23, 2023

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

MARGARET BRENNAN: We now talk about the state of the economy and the President of the Federal Reserve Bank of San Francisco, Mary Daly. Good morning.

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

MARGARET BRENNAN: The San Francisco Fed said that all congressional funds contributed 3% to fiscal spending throughout the pandemic — and inflation rose 3%. Do you expect the upcoming congressional bill to increase inflation as well?

Daly: Well, let’s remember that while there’s this fiscal relief during a pandemic, there’s also monetary policy relief. These are all necessary conditions to get us through the pandemic. So that’s why this is such an important part of history that will be judges, whether it’s too much or too little. But now, that’s the place. My staff evaluated this. As I look to the future, there is a lot going on in the economy right now, both domestically and globally. We are fighting high inflation. But the Fed is committed to reducing that. We’re not just looking at what’s passed in Congress, we’re looking at what’s happening around the world.

MARGARET BRENNAN: So 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 haven’t been worked out, or the time frame in which these things are happening. So now, Margaret, I think the bottom line is that inflation is too high and the labor market is strong. The global economy is battling persistently high inflation, and that’s my focus.

MARGARET BRENNAN: You are a labor economist. Our employment numbers were surprisingly strong on Friday. Why is it so surprising? What are economists missing here? What is your gain?

Daly: You know, it’s very interesting. You know, it does surprise anyone trying to figure out what that number is. We are you know, some predictions are going well. But, you know, frankly, if you’re in the community, if you travel anywhere, you’re just in your own community. I don’t think consumers are workers or businesses are surprised by this. SOS signs are everywhere. People can find as many jobs as they want. Looking for a job doesn’t take long. So I think the labor market is continuing to work. It just tells me that people want jobs and people want to hire. But the general truth is that inflation is too high.

Margaret Brennan: Does that still or does it indicate that recession is not where we are or where we are going?

Daly: If you’re out of the economy, you don’t feel like you’re in a recession. This is the bottom line. The most important risk is inflation. I think the job market just confirms that.

Margaret Brennan: Okay. We’re going to take a break, and we’ll be back with you soon. Mary Daly, stay with us. We have more questions.

*Business Breakthrough*

MARGARET BRENNAN: Welcome back to facing the country. We now continue our conversation with San Francisco Federal Reserve Bank President Mary Daly. In Friday’s jobs data, we also saw wages rise, but not as fast as inflation. How worried are you that this shows that inflation is really embedded in the economy in some way, and it really will force your colleagues at the Fed to keep having to raise interest rates.

Daly: You know, I don’t think inflation is embedded in the economy, we worry about the kind of things that can’t be easily corrected. What I see is an imbalance between supply and demand. Based on my own staff estimates of the excess inflation we’ve seen, about 50% is related to demand. The remaining 50% is supplied. The Fed is really geared up to lower demand, and we’ve seen the housing market and investment cool off. So I do see signs that the economy is cooling. The rate adjustments we’ve made will take some time to complete. We are far from done. This is a promise to the American people. We are far from done. We are committed to reducing inflation, and we will continue to work until this work is fully completed.

MARGARET BRENNAN: So is it still appropriate to raise rates by half a percentage point in September?

Daly: Of course. We need to rely on data. it may. We need to open our hearts. We also have two inflation reports coming out and another employment report. We will continue to gather all the information from the context of talking to you to understand how this plays out in the economy. But you mentioned, you know, wage growth a little bit above 5% inflation. The last print was 9.1%. Americans are losing ground every day. Therefore, the focus must be on reducing inflation.

MARGARET BRENNAN: One of the things the Fed has no control over is geopolitical risk. How concerned are you about what’s going on in the Taiwan Strait now?

Daly: Well, there’s a lot going on globally, and I think that’s really something we need to think about. It’s just passing COVID, making sure that new variants don’t disrupt economic activity. We have global central banks raise interest rates in an attempt to control their own inflation. We have ongoing developments geopolitically or more generally between nations and all of those things. The war in Ukraine, all of these things will create headwinds for the U.S. economy, and we’re going to have to overcome those headwinds to grow while keeping inflation in check.

MARGARET BRENNAN: The Fed’s job is done, and I know we’ll talk again. Thank you so much, Mary Daly.

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