Transcripts For CSPAN San 20240704

Mr. Wessel good morning. Im david wessel, director of the Hutchins Center here at brookings. I want to welcome everybody and i am very pleased to have mary daly, the president of the Federal Reserve bank of San Francisco with us today. Mary daly, who is an economist, joined the San Francisco fed in 1996, and she worked on a number of issues, labor market dynamics, income inequality, and rose to be the director of research and became the president in 2018. Now she is one of 12 reserve Bank President s and, except for new york, the other 11 are sort of considered the same. But mary daly has the distinction at her district because we drew the lines in 1913, which represents a fifth of the nations population. But unfortunately for her, they do not do population weighting when you vote on the fomc. Ms. Daly no, but maybe they should. [laughter] mr. Wessel so, president , i wanted to start by talking a little bit about how do you read the economy right today, and there seems to be a sense in the federal Market Committee that we need to raise Interest Rates at least a couple more times in order to bring inflation down to the 2 target. I wonder how you think about that. Ms. Daly sure, absolutely. And thanks everyone for being here, and thanks for having me. So, let me start with the economy. One of the surprising things about the economy is just how much momentum it continues to have. So, what has been notable is if you started at the beginning of year end at last year in december, if you looked at the summary of Economic Projections that the fomc put out in december, it was forecasting Slower Growth than we have now, higher increase in the unemployment rate, and more slowing in inflation than we see. So the data have come in in a surprising strength with inflation persistently printing too high. So, against that backdrop, you think, well there is more that we need to do. We need to continue to raise rates in order to bridle the economy more so that demand comes back in line with supply. But in that context, we also had the banking stresses in march, and those banking stresses can act like a credit shock and they can themselves restrain. So we are balancing the risks to the economy Going Forward against the incoming information, which is about strength. And i am very supportive, in fact a proponent of slowing the pace in tightening and doing that by standing pat at the june meeting, but also recognizing like the median of the sep projections does, that we are likely to need a couple more rate hikes over the course of this year to really bring inflation back into a path that is a long and sustainable 2 path. The important thing about all of this though is the word in projections is projections. Those are things that you suspect could be true, but we have to be data dependent right now to really understand how to make policy. Mr. Wessel so, when Interest Rates were at 0 and inflation was at 9 and unemployment was at historic lows, i dont think you needed a phd to decide that Interest Rates probably had to go up. But the fed has raised Interest Rates quite a bit, 500 Percentage Points in a five Percentage Points in a relatively short there of time, and as you said in public, the decisions get harder as you get closer to your destination. So i wonder when you look at the economy today, do you worry more about the fed doing too much and unnecessarily causing a deep recession, or do you worry about the fed doing too little and failing to get inflation down towards the 2 target . Ms. Daly thats a great question. In my mind, the risks have become more balanced. If you look to even last year, the risks were decidedly, and i said this publicly, a lot of my attention was on doing too little, that we could really run the risk of doing too little. And then we would end up with persistently high inflation, which we know is a tax on everyone but especially a tax on those least able to bear it. That was where my focus was. Over the course of time, as the economy has started to show signs of slowing and importantly, we have put in over 500 basis points of tightening already, what i then see is the risks as more balanced. But today, right now, with the labor market still being very strong, with gdp growth coming in above what we need to do to get demand and supply back in balance, and inflation persistently high, yes it is coming down but still not 2 . It is not our target. I am still waiting on doing the risk of doing too little is outweighing the risks of doing too much. But that gap is getting narrower and narrower. Thats why our decisions get harder. So thats why the decisions get harder and is why i was completely supportive and think it was appropriate to turn back the dial on the speed at which we adjust and a standing pat in the june meeting is just slowing the pace so we have more time to assess the economy and determine that. Ultimately, we do not want to make any error. You dont want to go too far and you dont want to go too little. But it is a tough problem, so more time to evaluate is really what we took in june. Mr. Wessel more time to evaluate but if you are looking at everything we know today, you still think we need at least a couple more rate hikes . Ms. Daly i think it is a very reasonable projection to say a couple of rate hikes will be necessary, but i am also holding myself to what i think my team calls extreme data dependent where i am going to be watching and looking. People ask me this question, and i think it is an important one how many more public data releases will be get before the meeting . Cant you decide today . I say, well, if data just meant public data releases, probably we could decide the last one that comes out we will make a decision. That is not actually what we mean by data. We mean talking to firms and households and worker groups and community groups, and you can do that all the way up to the meeting. Then you have debates and conversation at the meeting, which help us make the best decisions. Mr. Wessel besides looking at all the data that comes in and the economists who work for you parsing the different ways to slice and dice inflation and labor market data, how else do you go about getting information about what is going on in the economy . Ms. Daly Regional Reserve banks are very wellequipped to do this, and it is one of the things if you are president of the reserve bank you take quite seriously and have teams of people helping you with. So there are very formal ways we do that through the beige book. Many of you have heard of the beige book. We have a formal survey that the banks do and put together. Another way we do this is boards of directors. We have board of directors for the head offices of each of the 12 reserve banks but also the branches. We have councils, a Community Advisory council, Economic Advisory council, a Community Repository Institution Council and we are looking at those councils regularly and meeting regularly to understand what the economy is doing and what they see in the economy. I also have ceo roundtables and worker group roundtables. We have teams out in the field each month doing focus groups to collect this information. As you might imagine, i enjoy talking to people, so im out in my community and travel all over my district. I have nine states, a big portion of the population and the geography. I spend a lot of time just talking with people. Mr. Wessel talk about your sunday afternoons. Ms. Daly ok, my sunday afternoons. I will do that. On sunday afternoons, i like to go to fairly sizable retail outlets. It can be outlets that you buy lots of goods at or one to buy homeimprovement things. I like to go to retail outlets. I like to Wander Around and talk to people. Ive managed to do this without getting thrown out of the store. I tell them, look, i am an economist and really interested in how youre feeling about the tradeoff between jobs and price increases. Interestingly, what i keep hearing i like to go to areas where those margins will be more binding for people. If i go to the wealthiest areas, they say, neither one is affecting me. It is the low and moderate income communities where they will be least able to bear these tradeoffs that i go. I keep hearing the same thing. I have been hearing this for well over a year. Inflation is our number one problem. One young man, this was several months back, he was so striking to me. He has a daughter, wife, and he tells me, i say, what is problematic for you or what do you worry about . He says, i have more Job Opportunities than i can take because theres only 24 hours a day and seven days in a week. I am working already three jobs and i cant do anymore jobs. But every time i come to this store, i can afford less in my cart. He picks up the eggs and milk and says, i cant afford this. So im making more money than i have ever made in my life and i am falling behind. He said it was a treadmill. In my mind, it is a treadmill of indignity. Inflation, you work hard you do everything youre supposed to do and inflation erodes. People say, why are you so determined to get inflation down . One of the key reasons is because of people like that yet young man and the other americans whose tradeoffs might be less severe but still believe in the fed to have price stability. The current inflation rate is not the definition of price stability. That is how i spend my sunday afternoons. It informs me as a policymaker. Being resolute is something we need to do. Youve heard all the policymakers say it but being thoughtful how we carry that out is also important. I dont want to take that young mans job nor do i want him to have to worry about the price of eggs doubling every time he goes to the market. So those are the kinds of things i learned on sunday afternoon. Mr. Wessel the people look at you like you are some kind of a nut . Ms. Daly i have that midwestern personality that i get away with a lot of stuff. I dont think im very threatening. I think one of the things you have to have as a policymaker, i am an economist by trade and by training and some people dont think you know mr. Wessel they dont think you have in a personality ms. Daly a personality or emotions emotions, what are they , good for mentality . Truthfully, people want to tell their stories about how they are faring in the world. But you have to be willing to listen and not say, well, heres how i think youre feeling, do you agree . It is, how are you feeling . What are your struggles . I dont ask if you care more about employment or inflation. I say, how is the job going for you, or how are you faring in terms of the basket of goods youre purchasing . Those questions tend to invite people to speak without thinking im crazy. If i was just Walking Around with a book and i never take a book, if i was Walking Around with a book saying ok, one, inflation, two, employment, i might get thrown out of the store. Mr. Wessel how do you make sense of where we are in the economy now . I think most of us thought if you raised Interest Rates by five Percentage Points, the labor market in particular would be at least, if not screeching to a halt, we have 200,000 jobs last month and people say, wow, we finally got it down. From what you said, that is about twice what we need to keep up. Why do you think the economy has been so resilient given the amount of tightening . Ms. Daly i think that is going to be a question many economists and lots of young researchers study. How did this happen . There are many theories. I want to start with things that must be material. First, we put a lot of support into the economy. The fed did. We had Interest Rates moved to zero rapidly with lots of support through the Balance Sheet and Forward Guidance. That was one piece of it. The fiscal agents also gave lots of support to the economy. We were fighting a pandemic and the desire i think of all policymakers, monetary or fiscal was to not let something that , nobody had created, nobody had done this to themselves, do rail derail lives and livelihoods are long period of time. There is are pouring and resources to support to get people to the pandemic. But that support, coupled the fact for many people, theyre just stuck at home, cant do anything. So you start saving money, saving money accidentally because you cant use the money. The job market for many people remained strong. We know if the people who got laid off en mass that were given support, but if you were a tech worker, were living well. Youre working at home, dont pay commuting. Your salaries are going up. You have lots of demand for your services. So those are all money in peoples pockets. You get stacking up of lots of support for the next part of the puzzle, which is we dont like to be locked down as people. I have learned that. We got locked down for good reasons, or health reasons. Then we came out with a vengeance in spending. We end up with lots of money to spend and a great desire to do so. And supply did not cooperate. That is true. National supply chains were not cooperating. Global supply chains were not cooperating. Covid left its wake in different ways at different times across the world. So it just took a long time for Global Supply chains to get to back to where they were. Meanwhile, demand recovered very rapidly. It doesnt matter what country youre in. All countries demand recovered rapidly once the restraints were lifted and people had income. Then we miss it. I think when i look back, three reasons why the economy has not slowed more given what we have done. One, there are longer lags than we assumed. Two, the Monetary Policy record is weaker than it used to be. Three, the economy has more underlying momentum than we have really understood. I think all of those could be true and we should study all of them, but i really do see again and again and again this idea the economy has a lot of momentum. It takes a while. And we do have lags so that is why we have to be so datadependent. Just reflecting on your own way of being, we really want to get back out and participate and so does everyone else on the globe and we have the income to do it so far. Mr. Wessel what do you look at to know what you say your data dependent, what date are you talking about . Ms. Daly i look at a wide range of data. Many of you may know but it is useful to remind everybody. We have a lot of data that we a lot you see in the newspapers on inflation, employment. Dashboards underlying each of those things. It is not like we look at a single data point and say, ok, now we know what is going on with inflation and employment. We have a labor market dashboard looking at geographics, collection of realtime data, data that looks behind. All of these are publicly available published data. Those are rich. We have our model of things that understand how theyre behaving relative to history. But the first thing you learn when you go to school is data is a plural term. Data plural is also qualitative and quantitative data. Systematically collected, both of those pieces of data are important. And so we learn a lot from our , conversation. Not just the sunday conversations, but the colleagues at the fomc are having out in the communities, talking to the firms. We put that together. They are important because the data we get from published sources, there are a few leading indicators but by and large they were telling us what happened last month or the last six months. But even if they are realtime, they are just as of today. But what we really need to know to make policy well and reduce the chances that we will make over under correction errors is to look forward. We have surveys about what are people planning to do . Are they planning to hire more . Are you planning to quit . Are you planning to raise wages . These are all things that help us fill out the picture. I believe it makes better policy for us. Mr. Wessel what do those tell you now about what is happening . Ms. Daly what i hear, and we just had her Economic Advisory our Economic Advisory council meeting, people who have businesses all over the nine western states, a very diverse set of states. I have the intermountain states, coastal states, alaska and hawaii. This is a very Diverse Group of businesses and firms. And what im hearing is there are signs the economy is slowing. Here is an example. It is easier to find workers than it was last year. And then right after that, they say, but it is still hard. Input prices are not rising as fast as they were last year, but they are still rising. It is not as easy for me to pass along Cost Increases to final goods or my sales but i still can. So what im hearing is things are Getting Better in terms of the sustainability were trying to get between supply and demand your not there yet. It is too early to declare victory. That is why if you look at the sep projections from the fomc for june, summary of Economic Projections that we released where it says the median was two additional rate hikes this year, i consider that a reasonable projection with a great deal of data dependence around it. We may end up doing less because we need to do less. We may end up doing more. The data will tell us. It is data like these. Mr. Wessel i would say when you look back over the last three years how the fed handled the pandemic, how we got this unwelcome, unanticipated burst of inflation, how the economy performed differently than many of us, including those at the fed forecast, what are the two or three lessons youve learned about making monitoring policies Monetary Policy in the past three years . Ms. Daly great question. I will start pricing we will continue to learn these lessons. We are just really at the beginnings of learning things we will need to learn and we will have another framework review coming up. That is one of the things i hope we will dig into it what do we learn from the last five years that will help us inform the next five years. But when i think back to what i have learned, i have learned this, it is really challenging. It is challenging to just know how long the impact will be of a kind of seismic shock like the pandemic. I had the same experience when we came through the financial crisis. The financial crisis was a big shock, and economic models are not built to understand exactly how long that tale will be from that shop. That shock. What we found in the pandemic, things persisted for longer. It took longer than we imagined for supply to come back. It has been taking longer than we imagined for people to get past the idea of revenge spending. It has been a learning period that we have to bring a lot of humility when a big shock occurs. Our models dont usually incorporate how that is going to play out in the economy. I think that is a lesson. Another lesson i have learned, and definitely im thinking about it as we go through the next framework, we came out of the financial crisis with a whole suite of tools. We had the Balance Sheet tool, Forward Guidance, funds rate, Balance Sheet. They were all very, very helpful. Essential, i would say. But one of the things you learn from them is that they are not all equally agile. And so Forward Guidance is a , fairly easy and agile tool. We can change what we say. The fed fund rate turns out to be pretty agile tool. The Balance Sheet is not such an agile tool. You get that going and it takes a while to change direction. Because abrupt changes could influence or dislocate financial markets. So when you think of that, we have to be very thoughtful about how we communicate the stance of policy and how we dont make all of those tools work exactly the same way at exactly the same time. So, i have learned to have a lot more comfort with raising the funds rate while were still tapering asset purchases and figuring out how to communicate that well so people understand, were normalizing, were starting to normalize but we cant wait to raise the funds rate until the Balance Sheet we can get the tapering the asset because it could be then later than we would like. Forward guidance cant solve all the problems we have. I think that is another lesson. The third lesson is it is true i think of most institutions, whether you are in private sector or Public Sector institutions, we are often fighting the last war. The last war in this case we , could not get inflation up to our target no matter what we did. We were working in june 19 in 2019 to get it up. You go into the next saying that features are going to be with us and so the transitory blip in inflation will be pulled down by the Gravitational Force of inflation going back to 1. 8 . That did not turn out to be true. I think this discipline of not always fighting the last war, having an eye on the last war and the lessons we learn and having an eye on the future so you could say were only it just makes us more agile and more able to move forward. The thing you have to learn if your central banker, it is a humbling experience. Because you do your very best work, as ernest as you can be and try as hard as you can, and you still have to find you did i do every thing as you wish you would do if he had the benefit of hindsight. But we have the benefit of learning. We have to take those lessons and use them Going Forward. Mr. Wessel let me make sure i understand, lesson one, these big shocks have longer lasting effects than you anticipate. Ms. Daly yes. Mr. Wessel it is true that financial crisis of the pandemic. Secondly, the fed had said were not going to raise Interest Rates until we get done with the tapering of the quantitative easing, quantitative tightening and that linking those, we would not do it again. Ms. Daly i would not do it again. I dont speak for anyone else. I dont think it served us well. Mr. Wessel the third thing is, a mindset thing. We were so used to having too little inflation it was hard to conceive that we needed to deal with the other. Ms. Daly right yes. Those are my three things. Again, i think this is ripe for study and im open to whatever you want to point me to. Mr. Wessel great. I what to turn to the banking situation. So just to review, we had a couple of bank failures. There are, for historical reasons, we have many Different Bank regulators in the u. S. The Federal Reserve is responsible for the overall Financial Stability and has responsibility assigned by law for the very biggest banks. But the smaller and midsize banks, it kind of depends on how they are organized. Some of the banks that failed were not members of the Federal Reserve system so you dont have to take the blame for their failure. But probably the most spectacular one, Silicon Valley bank, was in the San Francisco district. First of all, could you talk a little about exactly how does this Bank Supervision work . What is the responsibility of the board of governors in washington and what is the responsibility of the supervisors who are on your payroll in San Francisco . Ms. Daly sure, absolutely. Happy to take that question and unpack the supervisor efforts of the fed. The vice chair supervision michael barr and the chair of the fed jay powell, jerome powell, have said supervision is a systemwide activity. But different parts of the system have different roles and responsibilities. Let me walk through what those rules of responsible vr because responsibilities are because they a very well defined and given to us often by congress. Let me stop at the top with the Regulatory Framework, the responsibility of the vice chair of supervision, michael barr. There are different vice chairs of supervision and those individuals hold the decision rights and responsibility to set the Regulatory Framework. As david mentioned, we have a complex regulatory system in the u. S. And there is a regulator internationally so the vice chair of supervision would work in that ecosystem, not just by himself, but work on that. He sets the regulatory agenda. He just spoke this morning talking about that. If there was a vote required, that would be a board of governors vote in washington that the governors would vote on this. The reserve banks dont play any role in policy. That is the first thing to know. We dont have a voice and policy. Not have a pen or vote in policy. The second piece of the supervisory system is once the Regulatory Framework is in place and it evolves and changes, not static framework. But once that is there, there is the second thing which is the supervisory framework. That is how we going to take the regulatory policies in place and apply them to the bank, in this case in the feds purview. That again is the responsibility of the vice chair of supervision at the board of governors. So in this case, michael barr , would set the supervisory framework and that is going to be everything from how many exams are performed for banks of different sizes, the stress test, how we do those stress tests. That is all the purview of the vice chair of supervision. And then, the third thing, and this is where reserve banks for come in, the execution of supervision. Once the Regulatory Framework and the supervisory framework are set then he had to go out , and do the day to day work to supervise the institutions in the fed system. That is a joint process, a joint effort. It is the effort of the teams in each of the reserve banks. San francisco as a team and so to the 11 banks in the Federal Reserve system and the board of governors has a team. And those teams Work Together to supervise the institutions across the country. Now, you asked specifically, what is the responsibility of the team in San Francisco . This is something that many may know and many may not erred the team in San Francisco, they work for the San Francisco fed. If you working in kansas city, work for the kansas city fed. But the supervisor activities that those individuals do our up to the board of governors. The reason you want that to be the case is because you want supervision to be executed homogeneously, similarly, across the country. You want a bank in north dakota that the same experience as a bank in new york as florida as texas or california. You dont want variation depending on regional fed you are at or who is the president. So president s play in important , role in the following way. The most important thing to take away is that it is a support role. My job is to support the supervision that is the vice chair of supervision has set out. How do i do that . How do all regional fed president s do that . We staff the bank with people who can do the job well. We ensure they are being the best in Public Service, doing what is required of them as supervisors. We are interacting on a regular basis with the board because the board oversees these teams. When gaps are exposed, we were we work collectively to fix them, or if we see gaps we raise , them to the Supervisory Staff so we can get better. The second control the regional the second role that the Regional Bank resident would play i play, is banks in our , system, they dont work in a vacuum but they work in an ecosystem of the economy. One of the things i take responsibility for is saying, heres what is going on in the economy in the district and this is what i see happening in the banks. We talk to them about their experiences in the economy. They can influence the economy and the economy can influence them. And report that back. It is input from Monetary Policy and the input for michael barr in supervision erred want to conclude with this. The thing about what vice chair barr and chair powell said and i want to reemphasize that supervision in the fed is a system effort. While many of us do not own the decision, those rest only with the board of governors or the vice chair were michael barr, we all own the outcomes. When they are not what we want them to be, we collectively work to make them better Going Forward. Mr. Wessel roughly how many supervisors work for the San Francisco fed . Ms. Daly our telly roughly is a little bit under 400. Mr. Wessel they work for you in that you are their boss but what they do is dictated or overseen by the board of governors . Ms. Daly that is absolutely correct. As we say, their badged to the San Francisco fed but they would be an play of the San Francisco fed. They participate in all of the aspects of being a San Francisco fed ploy, holding up to the values and things we espouse. But their work would be dictated and overseen by the board of governors. Again, i want to add because this is so important, this is a feature of the system that is built in to get continuity. It is also because Congress Gave the board of governors the responsibility of supervising and regulating banks, not the reserve banks. Mr. Wessel it is often said that the Federal Reserve board washington is delegated. Ms. Daly that is correct. Mr. Wessel this was not a great example of excellent supervision. I know there are lots of issues with the management of Silicon Valley bank, but barrs report has said that supervisory approach was too deliberative, focused on the accumulation of supporting evidence before you did anything. So im sort of curious what lessons have you learned from recent experience and what is changing as a result . Ms. Daly sure. One of the reasons we do reviews and i was supportive of the review michael barr did and the dead gao did report and theres another one coming out in the fall. These reports and reviews are essential to us, learning from people outside the exact system where they think we could have lessons. But the vice chairs report has already identified several areas. I want to pull on when you one of them you mentioned specifically and that is the , deliberative nature of things, which is another piece of language to say there is a slowness between when things are spotted and when there are Enforcement Actions or other things are taken. That pipeline of speed, well, that pipeline is not speedy at any juncture. So one of the things we can do exactly at the San Francisco fed with the teams is not make everything perfect before you raise your hand. So they are raising their hands. You see clearly in the report, identifying issues. But at every juncture if you are identifying issues but theres another level of vetting, then you sometimes can be slower than you need to be. I think that is one of the things the report has pulled out. That is not just a San Francisco thing or a board of governors thing. That is the way you can improve the supervisor process by just making it we are spotting things, raising our hands. You dont have to be absolutely sure because we are capable people. We can raise this and by we i mean the system not me because again, i dont play an active role in supervision. But raise issues and have deliberations and see. So i think the bias has to be to raise issues as opposed to waiting until you have every shred of evidence. That is what being too deliberative i think has made. Has meant. That is a lesson. The other lesson i got from this, and it is something we can use. You say, mary, do you not have strength at all there . I would say absolutely not. We have a lot of strength in this area. We know from theres of banking stresses or from periods where it was all hands on deck moment like the pandemic or we need the banks to mediate, we are good at moving things speedily. I mean look at the agility with , which the fed, the fda back by the fdic backed by the treasury acted after Silicon Valley bank and Signature Bank failed. It was a weekend. We have a new facility we have banks that were caught up in any spillovers, getting the liquidity they needed. That is a rapidity that is obvious. So the question is, how do we bring that same sense of agility, how do we bring that to our everyday work so we continue to do things as well and as studiously and as carefully as we are used to and we still move gradually agile he through them so we dont end up with a finding it is too deliberative. I would use a specific example but lessons that can be broader than this specific example. I already mentioned we are always fighting the last war. If you think of the Financial Stability report, all the things we do after the financial crisis we have lots of study , going out with a vulnerabilities and things but we also have to have an eye about what is going on around the corner. An example is a difference between insured and uninsured deposits. The stickiness factor that we believe we had on uninsured deposits i believe banks believed they had it that we as regulators supervisors, not just in the u. S. But across the globe, thought these were near neighbors. And they turned out not to be when people can move money quickly and people know each other, you can have runs on institutions and when they are not insured, they are passed limit those runs are easy to , think about doing. When you have, my money may not be safe, i am moving. We have to look around the corner and see how things could be occurring work quickly. But ultimately, we wont know everything. We dont have a crystal ball. That is why having a wellcapitalized Banking System is critical to having a healthy Banking System. Mr. Wessel not just San Francisco. This is one aspect of the fed i hope you will all take away, the way we work is as a system. The vice chair is working on how do we think about revising the supervisory framework at large . Ms. Daly how do we use all of us to do that . How do we Work Together. So it is not just the San Francisco fed, it is supervision in general. Because ultimately, yes it happened in San Francisco, but when a bank fails in another district, the thing i have in my mind is what we learned that . Ultimately is a system and it can happen anywhere. It happened in San Francisco. The lessons from your are very direct. I am owning them. I am taking account of them and i tell my teams all the time, our job is simple. We learn from what happened, we take on the feedback very, very seriously, and we get better right away. And so one of the ways we do , that is we raise our hands. We go in there. We were always raising our hands, but raise them higher where you say what is the escalation pattern for that . That is what is desired of us. Mr. Wessel does your staff feel their concerns were not heard loudly enough from washington . Ms. Daly i dont think i can say that, no. Let me be very clear, i cannot say that. This is not a failure of a specific group in the fed system. The vice chairs report details this. This is a step back, look at the process, find the process of deliberation when we think about deliberation, i want to be clear. Why are supervisors deliberative . Because they want to be careful. They want to be right. These are private Sector Companies doing jobs and they want to make sure theyre not back to over correcting or under correcting. You dont want to ratchet down the Financial System out of fear. You want to be careful, but you can easily move yourself one way or the other. This is a delicate balance. My teams are going to work with the teams across the system and do their best work. Mr. Wessel let me ask you one final question before i turn to the audience. Each Federal Reserve bank has a ninemember board of directors. Three of the directors are banks, bankers elected by the bankers in the district. Three are not bankers selected by the bankers in the district. Three are appointed by the Federal Reserve bank board of governors in washington. Of the bankers on your board, one of them was the ceo of Silicon Valley bank. That leads to speculation somehow the advisors went easier the supervisors went easier on svb because the president was on the board of directors. When people tell you that, no, im not the first person to say that, what you tell them . Ms. Daly it is not true. Let me tell you why. When you look at it, you wonder. Let me tell you why that isnt happening. Let me tell you what the ring fences are in place to prevent that from happening. The very first thing to note is supervision in the board of directors are completely separate from one another. When we started the conversation about banks we talked about how , supervision is done in the u. S. It is done to the board of governors. My teams in San Francisco work for the board of governors on the supervisory role. Those issues are never, ever discussed at the board of directors meetings. The board of directors meetings are about managing the other aspects of the bank and about learning about the economy and getting the votes on the discount rate for Monetary Policy. We never talk about Bank Supervision at board meetings. We focus on the economy at large and also the aspects of running the bank more generally. That ring fence is critical and it is what allows us to have, by statute, bankers on the system. Another fact people dont know is bankers are recused from any decisions around appointing Bank President s. They dont get to choose or be involved or do interviews. They are completely separated. I see all of these checks and balances in place as the right things to do given that you want to get information from the Banking System, part of collecting information about the economy, but you definitely dont want to blur the lines. While i understand optics would be such to ask the question, i can absolutely say the protections in place preventing those types of things from happening. Mr. Wessel just to clarify, i believe it is since doddfrank that when a new Bank President s are chosen, it is the six members of the board of directors who are not bankers who have that authority to recommend the choice to the board . Ms. Daly correct. Mr. Wessel i think we have time for some questions. Heres what i recommend, the mic coming over here. Stand up so we can see you, tell us who you are, try not to get a speech. Give a speech or i will cut you off. You mentioned in the beginning your focus on data. Could you talk about the extent to which you feel the fed has access to highquality granular racial and ethnic data so you can look at impacts of Monetary Policy on different groups from a disparity perspective . Ms. Daly sure. As many of you in the audience know, there is a lot more Information Available now and a lot more attention paid to disaggregating the data, if you will, so we understand what is happening not only in different geographic areas but also in different ethnicities, racial groups by gender, skill. And we do have a lot of information about that. The limits to understanding that more completely are about the data collected, which is why we have to go out and talk to our communities as well to augment that. You could not just look at the Current Population survey data, do the cuts, and feel like the sample sizes are not sufficient to look in communities like that and get realtime information. Information you can make policy on. It is why we have a Community Advisory council, why we meet with groups regularly to ask how they are experiencing the economy, it is why we have added in San Francisco and many other districts a Community Perspective section to the beige book, an addition over the last few years where we are going into largely communities of color or different ethnicities where we had not as much information. I feel like we are relative to what i started in the fed in 1996, we are eons further along but this is a journey. It is also true you think you have insight into one group, a pretty good handle on it, these are pretty diverse world out there where the aggregates dont really reflect the experience of anyone so we have to keep digging and find those types of information. Mr. Wessel gentlemen in the middle and then the back. Yeah, start there. I am sam. Im representing 2020 vision d. C. I am wondering, spoke a bit about the fsoc. It is undergoing a Comment Period right now. I know theyre moving away potentially from a required costbenefit analyses for potential nonbanks to be designated as nonbanks under fsoc guidance. Are there other quantitative ways you have of designating companies as formal nonbanks to come under increased scrutiny through barrs evaluation . Ms. Daly this is an example of where Federal Reserve Bank President doesnt have policy i dont have any input in the policy process so i cant really speak to what youre asking directly. But i can say there are processes in place to designate the different groups banks, nonbanks, etc. And part of the Public Comment and getting the information is understanding how people feel about those distinctions. But i cant really comment on the specifics because im the vice chairman. Mr. Wessel pedro . Thank you. I was wondering how much credit tightening have you seen or heard about since the crisis and is there any concern the rebound in bond yields back to the levels we saw in march could lead to another wave of Regional Bank issues . Thanks. Ms. Daly let me start with back in march, and this will be just reflecting my views. There is no, as far as i know, precise way to calculate this. So what you are thinking about what happened to loan volumes what has happened to lending , standards. Is that more or less that we would expect given the slowing of the economy . Back in march, i actually, and i said publicly back then, i was thinking that the credit tightening that would come from the banking stresses, not just a failure of the Silicon Valley bank, but the signature first republic, the other banks on the risk list of investors, that could in up with maybe 25 to 50 basis point equivalent rate hike. At this point, it seems to be less than that. In fact if you plot aggregate , lending, you would see it is not really different than you would expect given the projected slowing of the economy. When you look at the sloos. Senior loan officer survey. Mr. Wessel this is an acronymfree zone up here. Ms. Daly luckily, i have an interpreter. Sometimes i remember the acronym but forget what it stands for. It is embedded into my dna now. If you look at all of those indicators, what you see is they were starting to show tightening and slowing loan growth before the bank stresses. And that is consistent with what we would expect with raising Interest Rates. You want banks to look at their Balance Sheets, understand the economy is going to slow, and start positioning for Interest Rate risk and other things. This is exactly how we would want them to behave. At this juncture, here is my sense of things. If you look at history, it takes a wild. It takes a wild. Credit shocks have a lag. I dont think we can declare there is no credit shot from baking stresses. I think we could still see it coming in the next number of months. I have an open mind about what that is going to be. It is another reason i was very supportive of standing pat in june and waiting for more data to come out. The other thing i will say about them is we are seeing a lot of different depending on what size the bank is. The big banks and even the pretty large regionals, they seem to be just inline with the slowing of the economy. But i still hear from my Community Banks that there definitely tightening more out of a concern about the larger banking stresses. But how much more is hard to say. The final thing is, ultimately, what i walk away with is the Banking Sector is sound and resilient. And that is partly because of the swift and Decisive Action the fed and the board of governors with the fdic and treasury helped and the backstop facility that we have, the btlp, the Bank Term Lending facility. It is really hard to do it when you are on stage. If i was in the office, i would be rattling off these words. Mr. Wessel there should be a regulation. No acronyms without vowels. Ms. Daly that would be helpful. Youre doing this on the weekend so it is hard to come up with a name. Mr. Wessel that is what gpt is for. Ms. Daly you have the swift action, which is calming the stress is quite considerably. Now it is understanding banks are getting their Balance Sheets in order, responding to the fact that investors and consumers have a of site into Balance Sheets at their institutions and managing through that. Our job and my job as a policymaker is to understand that can still have an impact on the economy and be watchful for that as we do the hard job of trying to get to the last part of our rate hiking cycle. Mr. Wessel the other was bond yields have gone up. That means the banks losses on their portfolio. Ms. Daly sure. That just recently happened. I try to hold myself not a weeks worth of market data, not a months worth of employment data. We will come back to that if it should stick. Mr. Wessel the economics profession has a problem with diversity. It is a problem that has been seen as hostile to women and to people of color. It has become very much physicslike on the map. On the mouth. On the math. I think that may turn off some people because it seems so unconnected to their lives. If you could think for a minute as if the audience were first and second year students in economics about why you think it has been rewarding for you and how you dealt with the fact you did not look like most of the other people who were getting ph. D. s when you got yours. Ms. Daly yeah, absolutely. So here is the thing about , economics. In order to do economics well, you have to know a lot about human behavior. So you have to be a student of psychology and a student of psychology in the math. In the masses. Economics, i mean, i love this type of profession. Why do i love it . Because every day i do something, it matters for lots and lots of people. I dont take that responsibility lightly, but i like i get up every morning thinking what i study, what i say, how i think about the world matters for people i will never meet and i better do my job well. And when i dont do it as well as i like, i better do it again and try harder the next time. So there are few professions for , me that i found that have that kind of rewarding thing that you did deeply understand human behavior. You have to go out on sunday afternoons and ask people what theyre thinking and combined that with the indepthness of using models, history, be a great student of history as well. You have to put that together and combine the science of that with the art of understanding that the data wont fit together today the same way they fit together just a year ago were or two years ago. And figuring out what that picture is so you can get the best policy outcome is extremely rewarding. Like many young people, when i said not too many people around , here look like me or think like me or what to do what i do so is this the right profession to me . One of my early, early mentors said, well, if not you, then who . The world needs you, mary, to do this. So my response to each and everyone of you who might get a little wiggly and say, i dont know it is not that welcoming, well, it is our job to make it more welcoming. My job is to make it more welcoming than what was welcomed to me and that will pass on to you and then you will come. My bottom line for inviting you to be dedicated to the profession like i am, extremely rewarding and we need you. I mean look at the world we live , in. It needs a lot of support from people who have a great empathy for humans, and great understanding of the data, and a dedication to history and doing better. When you put those together, and every young person i meet, i am an ambassador for economics. I say, if youre on a dark night and doesnt feel like you belong, just call me. A lot of people have my text. They text me instead of calling me. Mr. Wessel great. Please join me in thanking president daly. [applause] if i can ask a favor for the people the room, stay in your seat until president daly leaves and then youre free to go about the rest of your day. Thank you all for coming. Ms. Daly i have been told i can step down and mingle. Is that ok . Mr. Wessel its ok with me. I was told you did not want to. Ms. Daly i am a feral cat. They want to be in a box and i want to roam. Mr. Wessel all right, mingle. Ms. Daly if you have a question for me that you need to ask, please come up. [indiscernible conversations] monday, securities and exchange his chair at gary gensler speaks on securities regulation as it relates to the peter future of artificial intelligence. Watch beginning at 1 00 p. M. 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