Navigating the U.S. Economy: Insights from Mary C. Daly, PhD, President of the Federal Reserve Bank of San Francisco

July 3, 2024
Jennifer Yoder
Navigating the U.S. Economy: Insights from Mary C. Daly, PhD, President of the Federal Reserve Bank of San Francisco

Mary C. Daly, President and CEO of the Federal Reserve Bank of San Francisco, in conversation with CNBC's Deirdre Bosa at the San Francisco Press Club event

Photo credit: Jeannie Entin, PRSA SV President-elect

Last week, the San Francisco Press Club in partnership with the Commonwealth Club hosted an insightful conversation between CNBC's Deirdre Bosa and Mary C. Daly, President and CEO of the Federal Reserve Bank of San Francisco. The event, offered both in-person and online via a live broadcast on the Commonwealth Club YouTube channel, brought together a diverse audience of business and public sector professionals, all sharing a common interest in better understanding the current state of the U.S. economy and the Federal Reserve's responsibility in navigating the challenges ahead.

The event began with a welcome from PRSA Silicon Valley board member and President of the SF Press Club Curtis Sparrer, followed by a personal introduction of Daly by Alex Mehran, chairman and chief executive officer of Sunset Development Company, who shed light on Daly's remarkable journey and her unwavering commitment to public service. Mehran's words painted a picture of a dedicated and empathetic leader, who understands the incredible impact economic policies have on individuals and communities – no matter their socioeconomic background.

In her keynote, Mary C. Daly discussed the current state of the U.S. economy and the Federal Reserve's ongoing efforts to restore price stability. She acknowledged the significant progress made in reducing inflation from its peak of over 7% to just under 3%, but acknowledged that “we’re still in a fight to bring inflation to 2%”. Using the "Beveridge curve" as a visual aid, Daly explained the relationship between job vacancies and unemployment with diminishing benefits to labor markets as inflation decreases, suggesting that the labor market may face less benign outcomes as the economy slows further. She stressed the need for the Federal Reserve to remain vigilant, flexible and responsive to economic developments, outlining three potential scenarios for the economy's future and how the Fed might respond:

  1. "If inflation turns out to come down more slowly than expected, feels a little stickier, then holding the federal funds rate higher for longer would be the right thing to do."
  2. "If instead, inflation falls rapidly, or the labor market starts to soften more than expected...we will need to lower the policy rate."
  3. "If we continue to see the gradual declines in inflation, and the gradual slowing of the labor market we have seen, then normalizing policy over time will be the right thing to do."

She emphasized that any of these scenarios are possible, stating, "We will need to respond to however the economy evolves, hence the conditionality.” This approach underscores the importance of balancing the Federal Reserve's dual mandate of achieving price stability and maintaining full employment (the level of employment we will reach when there are still people searching for jobs, but we have plenty of job openings available).

Addressing concerns about San Francisco's economy, Daly expressed optimism about its potential for recovery and growth, citing the region's talented workforce and innovative spirit. However, she acknowledged significant challenges, particularly in housing affordability. "There's no one I talk to in the Bay Area who doesn't remind me that it's not commercial real estate people talk about. It's housing," Daly noted, emphasizing the need for public-private partnerships to address these issues.

Daly addressed the ongoing debate about return-to-office mandates and their impact on both the workforce and commercial real estate in the Bay Area. She highlighted the importance of in-person interactions, particularly for younger employees' career development, stating, "Zoom is not a replacement for in-person contact for those individuals." However, she acknowledged the need for flexibility, advocating for hybrid work models. On the topic of artificial intelligence, Daly offered a balanced perspective. While recognizing AI's potential to boost productivity and reshape certain tasks, she doesn't anticipate widespread job losses in the long run. She points out that AI lacks human intuition and social awareness, saying, "It does not do what people do, it doesn't look at the room and say wow I see a lot of nodding heads when people talk about how challenging inflation is.” She argues against the notion that AI will entirely replace human workers, instead suggesting that the outcomes depend on how we choose to use this technology.

Looking ahead to 2034, Daly envisioned an economy where "everybody has opportunities that give them the ability to invest in themselves, in their families, in their businesses, and in their communities." This vision encapsulates her approach to inclusive economic policy - one that considers the real-world impact on individuals and communities.

Key Themes and Takeaways

  1. The Fed is focused on bringing inflation down to its 2% target while maintaining a strong labor market, taking a balanced and data-dependent approach to monetary policy.
  2. Despite concerns about San Francisco's economy, Daly remains optimistic about its potential for recovery and growth, citing its talented workforce, innovation ecosystem, and history of resilience.
  3. Artificial intelligence is likely to boost productivity and have some deflationary effects, but Daly doesn't expect it to cause widespread job losses in the long run.
  4. Housing affordability and availability remains a critical challenge for the Bay Area economy that requires public-private partnership to address.
  5. The Federal Reserve's independence is crucial for maintaining its credibility and effectiveness in pursuing its dual mandate of price stability and maximum employment.

For a quick visual summary of this discussion, check out the San Francisco Press Club's highlight reel: Event Highlights: The Fed’s Mary C. Daly with CNBC’s Deirdre Bosa.

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Jennifer Yoder is a Silicon Valley-based communications professional and a new member of the PRSA Silicon Valley Chapter.

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