Transcripts For CSPAN San 20240705 : vimarsana.com

Next time. [applause] our live coverage continues now or three marks from the San Francisco Federal Reserve Bank President mary daly who as an event hosted by the brooking institution. We joined the slide in progress here on cspan. I think my team calls extreme data dependent where i will be watching and looking at people asked me this question, i think it is an important one, common or public data releases will we get before the meeting . If date adjustment public data releases, probably would could. But that is not what we mean by data. We be talking to firms and households and worker groups and community groups. You can do that all the way up to the meeting and then you have the debates and conversation at the meeting, which help us make the best decisions. Besides looking at all the data that comes in and the economist to work for you parsing the different ways to slice and dice inflation and labor market data, how else to go about getting information about what is going on with the economy . The Regional Reserve banks are very well equipped to do this. It is one of the things if you are president of the reserve bank, take it quite seriously and have teams of people helping you. There are formal ways we do it through the beige book. We have a formal survey the banks do and put together. Another way we do this is through boards of directors. They are for the head offices and the branches. Councils, Economic Advisory council, Community Repository institution council. We are looking at those councils regularly, meeting regularly to understand what the economy is doing and what they see in the economy. I have ceo roundtables and worker group roundtables. We have teams in the field each month doing focus groups to collect this information. As you might imagine, i enjoy talking to people so i am out in my communitys and travel all over my district. I have nine states. I spend a lot of time talking with people. Talk about your sunday afternoon. On sunday afternoons, i like to go to fairly sizable retail outlets. He can be outlets that we buy lots of goods at war one to buy homeimprovement things. I like to go to retail outlets. I like to Wander Around and talk to people. I managed to do this without getting thrown out of the store. I tell them, look, i am an economist and really interested in how your 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 euros. People say, why are you so determined to get inflation down . Because of that young man and all the other americans who tradeoffs might be less severe but still believe in the fed to have price stability. That is how i spend my sunday afternoons. It informs me as a policymaker. Peeing resolute is something we need to do. You have heard the being resolute is something we need to do. 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. Those are the kinds of things i learned on sunday afternoon. To people not look at you like youre some kind of nut . 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 some people dont think, you know they dont think you have in a personality 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 your purchasing . Those questions tend to invite people to speak without thinking im crazy. I never take a book but if i was Walking Around with the book inside, ok, one, inflation, two, employment, i might get thrown out of the store. 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 . I think that is going to be a question many economists and lots of young researchers study post 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 for guidance. The fiscal agents also gave lots of support to the economy. We were fighting a pandemic and the desire i think of all policymakers was to not let something that nobody had created, nobody had done this to themselves, do rail lives and livelihoods for long periods 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 enmass 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. Lots of demand for your services. That is 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 good reasons, 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. Supply did not cooperate. 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. It took a long time Global Supply chains to get to back to where they were. Meanwhile, demand recovered rapidly. It doesnt matter what country youre in. All countries demand recovered rapidly once the restraints and people had income. I think when i look back, three reasons why the economy has not slowed more given what we have done. One, there are longer lives 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. We do have lags so that is why we have to be so datadependent post of just reflecting on your own way of being, we really want to get back out after dissipate. So does everyone else on the globe. What do you look at to know what you say your data dependent, what date are you talking about . I look at oh wide range of data. I think it is useful to remind everybody, we have a lot of data that we a lot you see in the newspapers on inflation, employment. 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 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. 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. We learn a lot from our conversation. Not just the sunday conversations, but the colleagues conversations are having when we are out in the communities, talking to 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 theyre real time, they are just as uptodate. What we really need to know to make lessee well and reduce the chances 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. What do those tell you now about what is happening . What i hear, and we just had her Economic Advisory Council Meeting so that is people from people have businesses from all over the nine western states. Very diverse set of states. I have the intermountain states, coastal states, alaska and hawaii. A very Diverse Group of businesses and firms. 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. 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. 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. If you look at the sep projections from the fomc for june, summary of Economic Projections released were it says 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. I would say when you look back over the last three years how the fed handled the pandemic, how we got this unwelcome 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 in the past three years . Great russian. I will start great question. I will start pricing we will continue to learn these lessons. We are the beginning of learning things we need to learn. What 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. It was a big shock. Economic models are not built to understand exactly how long that tale will be from that shop. What we found in the pandemic, things persisted for longer. It took longer than we could imagine 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 hemolytic went 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 palace sheet tool, dell Balance Sheet tool, porter were guidance, funds rate, Balance Sheet. They were all very, very helpful. Essential, i would say. One of the things you learn is there not equally agile. Ford guidance is a fairly easy and agile tool. We can change what we say most of 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. Abrupt changes could influence or dislocate financial markets. 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. 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 tapering the asset because it could be then later than we would like. Ford guidance cant solve all of 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. In this case, we could not get inflation up to our target. No matter what we did. Working, working, working over 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. You do your best work, or as earnest as you can be and tries hard as you can come 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. To make sure i understand, lesson one, these big shocks have longer lasting effects than you anticipate. 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 linking those we would not do that again. I would not do it again. I dont speak for anyone else. 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. Those are my three things. Again, i think this is ripe for study and im open to whatever you want to point me to. I what to turn to the banking situation. 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, 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 San Francisco San Francisco in . Happy to take that question. 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 responsibility. Let me walk through what those rules of responsible vr because they are very welldefined and definitive. Often given to us by congress. At the very top, ill start with regulatory policy, the wrigley torrey framework as we call it. That is the responsibility of the vice chair supervisions. In this case, michael bar. There are different vice chairs of supervision and those individuals hold the decision rights and responsibility to set the Regulatory Framework. They are we have accomplished regulatory system in the u. S. And there is a regulator internationally so the vice chair would work in that ecosystem, not just by himself, but he says 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. The reserve banks dont play any role in policy. We dont have a voice and policy. We dont have a vote in policy. This 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, the