From supply shocks to battle with the delta variant, there is a lot of uncertainty ahead for members of the Federal Reserve’s Federal Open Market Committee. At its last meeting, the FOMC signaled that it may soon begin to reduce the economic support put in place by the Fed at the start of the pandemic. But according to Mary Daly, chief executive officer of the San Francisco Federal Reserve and voting member of the FOMC, that uncertainty doesn’t change what Fed officials have always done: observe and react.
Daly, who has held the position since 2018 and has worked at the Fed for 25 years, oversees the 12th district of the central bank, which represents one-fifth of the country’s population. She met with “Marketplace” host Kai Ryssdal near Lake Merritt in downtown Oakland, where they discussed various issues including inflation, the political stalemate over the debt ceiling and why the confidence is crucial for the Fed. The following is an edited transcript of their conversation.
Kai Ryssdal: How do you take inflation into account? Because yes, transitory, but people notice it.
Marie Daly: Well of course they notice it because they pay more for food, gasoline. If you want to travel, your prices are higher. It’s in people’s wallets. And if you look around my community in Oakland – as you know there are many low and moderate income components of Oakland – they feel it. What I also know, however, is that they want jobs. And the balance we have is between looking through some of the inflation shocks, keeping an eye out 18 months, and as COVID recedes, we’re going to see inflation come down. This is my hope. I have to keep the data addiction, that’s what I see. And then these people will continue to engage and enter the labor market. This is what we need.
Ryssdal: Are you whistling in front of the cemetery or are you reasonably confident?
Day : I’m more confident than whistling in front of the cemetery, that’s for sure. But I also recognize that it also takes a lot of humility. This is one of the most uncertain times in my memory at the Fed. I have worked here for 25 years doing this type of work. Boy, the world is uncertain. And so you have to keep an eye on the data and keep looking.
Ryssdal: What do you do with this uncertainty? The Federal Reserve is – and I say this without trying to be pejorative – you are a tightly controlled organization. And there is so much now that is beyond your control. What are you doing with it?
Day : Well, you know, it’s interesting. I think we have that characterization. We are tightly controlled. But this is what we really are: We are responsible for taking what comes. We are therefore agile. We have to watch and we can’t overreact to say, ‘Nothing bad is happening, we are good’ or ‘Whatever bad is happening, we have to raise rates to make it come back. None of these extreme postures, the reactive ones, would be good.
Ryssdal: I’m wondering how to ask this question in a way that you won’t mind.
Day : I am hard to offend.
Ryssdal: Well, I want to, I want to be fair with the question, don’t I? Chair [Jerome] Powell and FOMC members and regional Fed chairmen spent a lot of time at the start of this pandemic saying, “You know what? We understood. We are there, it’s good. It’s going to be transitory. And maybe not.
Day : We do not know yet. And so it’s totally understandable to me that people are worried. I totally understand because there is this perception that “transient” means quick to roll back. But that doesn’t mean it recedes quickly, it means it’s unlikely to persist when COVID has passed us, likely not to persist when supply shocks have moderated. Will it last longer than we want it to? Absoutely. I would say it’s already done. Does that mean he will be here forever or that we are late? Not in my opinion.
Ryssdal: Now let me talk a bit about tax agents and the politicization of the US economy. We are approaching a debt limit [crisis] – I will use the word “crisis” on purpose. Are you worried?
Day : Well, if we’re getting close to that debt limit, and there’s no feeling it’s going to be resolved, I’m worried because we really can’t afford more shocks to the economy. We’re still in recovery mode so I would consider this a huge crisis. This could have devastating effects on the financial system. And I’m just going to bed every night trusting our elected officials that they’ll do the right thing.
Ryssdal: OK, this question is going to get me in trouble, but why do you have this faith? I mean, the evidence is sort of against you.
Day : I see time and time again that even though people struggle and have this, you know, sense of the spirit of the chasm, when we go there, they recognize that if we default on our debt, there are lasting consequences that we owe not only to ourselves, not only today, but to future generations. We depend on others who think we are trustworthy to pay our debts. It is a commitment that I must believe that each elected official takes to heart.
Ryssdal: Back to the idea that the Federal Reserve is a controlled organization. I know you all spend a lot of time thinking about your communications. You are giving speeches, other Fed chairmen are giving speeches, Federal Open Market Committee members [as well] and [the] interviews you do. When, I guess, your people came to you and said, “Hey, listen, Marketplace wants to talk,” what’s the math? Who are you trying to reach in your communication strategy?
Day : Oh, that’s a great question. You know, in my world, and now you’re gonna call me naive or maybe Pollyanna –
Day : But I want to reach out to every American because at the end of the day our work is about every American, so when my team comes to me and says, “People want to talk to you,” I say, “Where are they among the people whose we need ? reach? ”Because if we’re only talking to people who already knew who we are, then we didn’t reach anyone. I’m trying to reach people who might say,“ Mary, I don’t really see this. Actually, my prices are going up, my house is hard to pay, and what are you doing for me? ”These are the people I want to talk to.
Ryssdal: Another question about the Fed as an institution. No matter how you communicate, you all need to be trustworthy. There have been a few incidents over the past two weeks with Rob Kaplan at the Dallas Fed and Eric Rosengren at the Boston Fed. The Fed Inspector General examines this, trades and reliability. What’s your reaction ?
Day : Trust is our most important tool. If we don’t have the trust of the people then nothing we do will matter because if you think about monetary policy and how it works it works because we say we’re going to lower the rate. of interest and that it is transmitted to the market. People need to know that we are doing our job for them, not for our own benefit, so these two weeks have been very disappointing. And I take it extremely seriously, and you know, I welcome the review we’re doing because at the end of the day what I want to be able to do is not look Congress or others in the eye. , but the average person, and say, “You can trust me.”
Ryssdal: When you heard about Kaplan and Rosengren, did you say they had to quit?
Day : You know, I really work on this principle that people themselves will do the right thing. And I don’t offer my judgment. I offer my support to do the hard work that we need to do, which is to rebuild the trust that we have lost. Confidence is not something you get and keep, it’s something you get and earn every day.