Highlights rebounding from covid19 and Silicon Valley bank which was under the regulation of the San FranciscoFederal Reserve. This is just under an hour. Good morning im director of the hutchens center at brookings i want to welcome everybody and pleased to have mary daily, president of the Federal Reserve bank of San Francisco with us today and mayor daily an economist joined the San Francisco fed in 1996. And she worked on a number of issues labor market dynamics, inequality and throws to be director of research and became president in 2018. Now shes one of 12 reserve Bank President s. And except for new york, the other 11 are sort of considered the same. But mary daily has the distinction her district because we do the lines in 1913 represents fifth of the nations population but unfortunately for her they dont do population waiting when you vote on the f1c. Maybe they should. [laughter] 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 fence of the federal Market Committee that we need to raise Interest Rates at least a couple of more times. In order to bring inflation down to 2 target and i wonder how you think about that. Thanks everybody for being here and thanks for having me. 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 beginning and you ended last year december you looked at summer of economic projection that the f1c put out in december, which was for forecasting Slower Growth than we have now. More higher increase in Unemployment Rate and more slowing inflation than we see. So the data have come in and the surprising strength with inflation persist too high and theres more that we need to do. We need to continue to raise rates in order to bridle economy more so that man comes back in line with supply. So in that context we also had the banking stresses in march and theres banking stresses can can add credit shock and they themselves restrain so were balancing risk of the economy Going Forward against incoming information which is about strength, and im very i was very supportive, in fact, swelling pace of tightening by standing paths in the june meeting but also recognizing like median of the c projection does is rate hikes over the course of this year to really bring inflation back into a path that is along a sustainable 2 path so important part about this is word in projection is projections those are things that you suspect could be true. But we have to be data dependent to really understand how to make policy. So when Interest Rates were zero and inflation at 9 and unemployment at hicks lows i dont think you needed a ph. D. To decide Interest Rates had to go up. But the fed is raised Interest Rates quite a bit 5 Percentage Points in a relatively short period 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 fed doing too little and failing to get down to 2 target. Thats a great question and risk is more balanced so if you look to even last year, the risks were decidedly 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 end up with persistently high inflation which is a tax on everyone but speacialg especially those tax, but thats where my focus was. Over the course of the time as the economy has started to show signs of slowing and importantly we have put in over 500 basis points of tightening already then the see the risk is more balanced. But today, right now, with the labor markets still being very strong, we have gdp growth comes in above what we think we need to do to get the demand and supply and inflation persistently high. Yes theres coming down but its still not 2 its not our target then im still waiting on doing the risk of doing too little are outweighing risk of doing too much but that gap is getting narrower and narrower. So thats why the decisions get harder. And it is why i was completely supportive and i think it was appropriate to turn back the dial on this speed at which we adjust in standing pat . The june meeting just slowing the pace. So we have more time to assess the economy. And determine that ultimately we dont make error dont want to go too far or too little but its a tough problem. So more time to evaluate is really what we took in june. But more team to evalwit and looking at everything we know today you think we food at least a couple of more rate hikes. Projection to say rate hikes will be necessary but im holding o myself to what i think my team calls extreme data dependent where imm watching d looking, and people ask me this question i think it is really an important one. Well how many more public data releases will we get before the meeting . Cant youwi decide today . And i said well, if data just meant public data releases we could decide last one will mac a decision but thats actually not what we mean by data. We mean talking to firms and households and worker groups and Community Groups and you can do that ul a the way up to the meeting and then, of course, you have the debates and conversation at the meeting. Which help us make up best decisions. Besides looking at data that comes in and all of the economists who work for you with the different ways to slice and dice inflation and labor market data, how else do you go about getting information about whats going on in the economy . So Regional Reserve banks are very well equipped to do this and it is one of the things that if youre a president of the reserve bank you take seriously how many people helping you with. So theres some very formal ways we doop it through the beige brk many of you have heard of the beige book so we have a formal survey thate banks put togethe. And another way we do this is through our boards of directors so we have boards of directors for head offices of each of the 12 reserve branch and Community Advisor council and Economic Advisory council a community dispose story and were looking at Councils Meeting regularly to understand what the economy is doing and they see in the economy. And you have ceo round tables and worker group round tables we have teams in the field doing focus groups to collect this information. And then as you might imagine, i enjoy talkingio to people so im out in my communities and i travel all over my district. I have nine states and big portion of the population and the geography and i spent a lot of time talking to people. Talk about your sunday afternoon. Rng my sunday afternoon, i will do that. So on sunday afternoons i like to go to, you know fairly sizable retail outlets and it can be retail outlets that you buy lots of goods at or you can be ones you buy Home Improvement things at but i like to go to retail outlets and i like to wander round and i manage without getting thrown of the store. Thats the first thing and i say im a economist and im really interested in how youre feel about the trade opts between jobsg and price increases. And interestingly what i keep hearing and i like to go to areas where those margins will be binging for people if i go to the wealthiest areas theyll say neither one is affecting me. It is really the low and modern income communities where theyre least able to bear tradeoffs that i go and i keep hearing is a imthing and ive been hearing this for well over a year. Inflation is our number one problem. And one young man and this was several months back, you know probably earlier this year late last year i cant actually remember. But it was so striking to me so he has a daughter, wife, and what is problem mat egg for you own challenging and what do you worry about . I have more Job Opportunities than i can take because theres only 24 hours a day and 7 days in a week. And im working already three jobs and i cant do anymore jobs and any time i come to the store i can afford less in my cart and he picks up eggings and the milk and he p says i cant afford ths so im making tradeoff and more money than ive ever made in my life. And i cant im falling behind. And he said it was a treadmill and in my mind it is a treadmill of indignity right because inflation you know you work hard everything youre supposed to do. And inflation arose so people ask me why are you getting inflation down and peemg people and tradeoffs mean less severe but still are believe in the fed that our s job is to have price stability and the current inflation rate is not the definition of price stability. So thats why i spend my sunday afternoon that informs mes a policymaker because we you know being a resolute is something we need to do. Youve heard all of the policymakers say it. Ne but being thoughtful about how we carry that out is also important. So i dont to take that young mans job nor do i want him to have to worry about price of eggs doubling every time he goes to the market so these are kinds of things that i learn on sunday afternoon. And people dont love that you like some kind of nut . I have that midwestern personality that i get away with a lot of stuff i dont think im very threatening but i also i think one of the things you have to have is is a policymaker its such an interesting thing economist by training so people dont think, i mean they dont think you have a personality. Or emotion you know emotions what ar they good for kind of mentality but truthfully, people want to tell their stories about how theyre 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 really how are you feeling in the world and how is what are your struggles so i dont ever ask do you care more about inflation or employment i say youre here with the how is the job going for you or how is the how you faring in materials of this basket of goods youre period offing and those questionst tends it invite peoe thinking im crazy and i never take a book but i was walking with a book and inflation request unemployment then 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 raise Interest Rates by 5 pointsu that the labor market n particular would be at least if not screeching to a halt wouldnt be we have 200,000 jobs last month and people say wow. Like we finally got it undid and what you said that is twice what we need to keep up with growing population. Why do you think the economy has been so resilient given amount of tightening that youve done . I think thats going to be a question that many economists then lots of young researches study. How did this happen so theres many theories right. Let me start with things like must be material. First, weve 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 Sheett and Forward Guidance. So that was one piece of support. The fiscal agent also gave lots of support to the economy. I mean, we wereav fighting a pandemic and then desire i think policymakers monomonetary or fiscal of mine was not to let something that nobody had created nobody had done this to themselves derail lives and livelihoods for long periods of tile. So theres a pouring in of resources to support to get people through the pandemic. But then that is coupled that support coupled with the fact that for many people theyre just stuck at home you keapght do anything. So you start saving money, saving money accidentally because you cant use the money. The job market for many people remains strong. Se i mean, you know we know of the people who got laid off in mass and given support. But from if ur yo a tech worker you are living well right youre working at home you dont pay commuting cost your salaries are going up and lots of demanding for your services. So those are all money in peoples pockets so a stacking up of lots of support for the next part of the puzzle which is we dont like to be locked down as at people ive learned that o we got locked down for good reasons for Health Reasons and then we came out with a vengeance in spending so we end up with lots of money to spend in a great desire to do so, and supply did not cooperate. And thats True National supply chains were not cooperating Global Supply chains werent cooperating. Covid left its weak 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 demanding recovered very rapidly and it dupght matter what country youre in right all countries demanding recovered rapidly once the restraints were lifted for Health Reasons and people had income, and so then we miss it. So so i think when i look back you know, three reasonsen why the economy hasnt slowed more given what weve done. One, is that theres just longer lags than we assumed. Two is that the Monetary Policy transmission is weaker than it used to be. And three is the economy had more underlying momentum than we have really understood. And 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 that the economy has a lot of momentum. And it takes a while and we do have lags. So thats why we have to be soda data dependent but we wantst to get out to participate so does everyone else on the dwhroab and we have the income to do is so far. So what do you look at to know when youre say youre data dependent what do you look at . A large rake of data and useful to remind everybody of so we have a lot of data that we can you see in the newspapers on you know inflation, employment, the dashboards underlying eep of those things it is not like we look at a single data point say thats whatsy, going on we hava labor market dashboard looking at things geographic you know, collection of real time data. Data that looks behind so all of l these are public data and thoe are rich and we have models that understand how theyre behaving relative to history. Rs but the data and data you know first thing owe learn when you go to school is data is a plural term soda it is quantitative and quality at a and collective and both are important so we learn a lot from our conversation not just sunday conversation but conversations that my colleagues at the f1c are having when were out in the communities were talking to firms. E weve put that together, and really theyre important because tata we get from public sources there are few leading indicators but theyre telling us about what happened last month. Or in the last six months but theyre not event if theyre real time theyre just as of today. But what we really need to know to make policy well and reduce the chances will make over, under correction errors is to look forward so we have surveys about what are people planning to do anden playing to hire more and planning to quit you know are you planning to raise wages or plans to ask for wage increase these are all things that that help us fill out the picture and i believe make bettere policy for us. One of those tell you the latter target what do they tell you about whats happening with the pace . Were right here and we have our Economic Advisory counsel meeting so thats people from you know, people who have businesses from all over the nine western states. And this isth a very diverse set of states inner mountain and coast the states and then i have alaska and hawaii so this is a very Diverse Group of businesses and firms. And what im hearing is that there are signs the economy is slowing. Heres an example. Its easier to find workers than it was last year. And then right after that they say but its still hard. For input prices arent rising as fast as they were last year but theyre still rising it is not as easy for me to pass along coast increases to final goods or my sale. 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 demanding but were not there yet. Too early to declare a victory. And thats why if you look at the sep projections from the f1c for june. Summer of Economic Projections that we released where it said median was two additional rate hikes this year i consider that a reasonable projection with a great deal of data dependence around that we may end up doing less. Because we need to do less we mayened up doing just that and could end up doing more. Data will tell us and its data like these. So i say that when you look back over the last three years s how the fed handld pandemic and got to unwelcome unanticipated burst of inflation, how the economy performed differently than many of us including those at the fed forecast. Ud what are one or two lessons youve learned about making Monetary Policy from the last threer yews . Thats a great question well start by saying well continue to learn these lessons but were really at the beginning of learning the things we will need to earn will and well have another framework review coming up and you know thats one of the things i hope we will dig into is what did we learn from the last five years that will help us inform the next five years. But when i think back to what ive learned, ive learned this. That its really challenging and it is challenging hindsight is always your friend in these regards but its challenging to just know how long the impact will be. Of a kind of seismic shock like a pandemic. I had the same experience when we came through the public crisis the financial crisis was a big shock and economic model are not