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San Francisco FED. President Mary Daily, President Dady, welcome back to the program. It's good to catch up with you. I want to start with this data and maybe we can spend some time on a palace intrigue later on jobless claims, initial claims lower than expected, continuing claims higher than expected, and creeping higher over the past few months.
From your advantage point, President DAii, how much weight would you put on one versus the other and what's the labor market picture look like in your point of view?
Your opinion, Well, the labor market shaping up to be solid, and the data today confirmed that. Now continuing claims are going up because it takes a little longer to find a job. That's consistent with the hiring numbers just being slower as the economy comes to a more sustainable pace. But when I look at the labor market, there are really no warning signs that it's weakening. WILL continue to watch that, but right now it's progressing solidly, although more slowly than before.
President Daily. A lot of people have said that it is a data dependent federal reserve, and yet we haven't seen enough data to really understand or whether inflation is the primary objective or whether it really is some of the weakening that we've seen in the labor market, albeit from a strong place. When will you have enough data to really make that determination.
Well, one of the challenges of central banking that you just have to accept is that we never have perfect data, so you're always making judgments, and you want sufficient data to make a judgment that is really going to be best for the American people. So right now we have incoming information on the labor market which does not signal real weakness, It just signals slowing, so we con needue to watch that. And then on inflation, the data have
been good so far coming in. If we were only backward looking, we would say, oh, it's time to adjust the interest rate. But we have to be forward looking, and then you have to make judgments about how you think inflation will shape up going forward. And they always really see three scenarios, and I'm leaning towards one, and I'll tell you more and more. But the one scenario, of course, is that it's just delayed. The tariffs are
going to have some impact on inflation. It is after all, increasing costs, and that will be a more persistent effect. The second opportunity or a possibility, is that it's delayed but it will be a one off. And then the third,
of course, which I think is increasingly possible. It's not my modal, but it's increasingly possible, is that this just doesn't amount to as much as the models in history would tell us, because businesses find ways to absorb the costs and they split it down the production chain and ultimately consumers pay less of that. So I think those last two scenarios, it's delayed, but it's a one off, or it doesn't materialize to the extent that the models
would suggest. Those are where I'm putting increasing probabilities. It will just have to collect some more information to make a decision. But you know, ultimately we can't wait for perfect information or we'll be behind, and we can't do that to the American people.
It sounds like President DAILI are leaning toward a sooner rate cut if it is confirmed that this tariff impulse is and as inflationary as people expected.
Is that correct, well sooner than what I mean? My motal outlook has been for some time that we would begin to be able to adjust the rates in the fall, and I haven't really changed that view. It does seem like that. Of course, if the tariffs are one off, you can look through them, and if they're just not going to materialize, and you have to watch both sides of the mandate. And I think that's really important. It's
not one or the other. It's both sides of our mandate that have really come into frame since we brought inflation down from the really high levels to something that's closer to our target. Ultimately, we have to watch both sides and that's what I'm doing. And then the fall looks promising for a rate cut. I don't know for sure. I mean we have to be open about what we don't know. Humble is I think the word that comes out of the inflation run up and so but we will.
You know, there's a lot of differences of views on the committee. I see that as real positive right now, because people bring their perspectives and the data will guide us to what is the one that ultimately looks like reality.
President daily John was talking about the Palace intrigue, and I do wonder about how the increasingly political overlay to the FED has complicated your messaging, given that there is this debate about the dual mandate, etc. How much has it affected the way that you communicate?
You know, not really. One of the things that I recognize on a regular basis is if I go out and talk to the people who live in the twelve Federal Reserve districts, so that's nine states, very diverse states in the West, they don't actually bring this up at all. What they bring up is what do you think is going to happen to inflation? Will you be able to restore inflation to two percent? Will you be able to restore price stability? Do you think the labor market is
going to be preserved during it? Because ultimately I really want both jobs and lower inflation. I want to be able to get ahead. And so far, the people in my district are cautiously optimistic overall, thinking that the economy is weathering some of the worst concerns and the uncertainties
but continuing to move along. So cautiously optimistic is where they're where they are, and I think that reflects what's on top of their mind, less about what's happening in Washington, and more about what's happening in their lived experience, in their communities.
So, President Daily, would you dismiss some of the discussions around shadow fed and all of that is simply palace intrigue and not necessarily affecting what would happen on the feder Are you concerned about that?
You know, Ultimately, what I'm concerned about is the two mandates Congress gave us full employment, price stability. There's work to do there. That's where all of my focus is. And the Federal Reserve is an institution. It weather's a variety of different points in time ultimately, because we only think of one thing, how our work and further the American people in their lives and livelihoods, and how we do that through our congressionally mandated goals. So that's what
we think about. We've had a durable history since nineteen thirteen, and I would consider that to be continuing to do our job well.
President Daddie. One argument we've heard to reduce interest rates sooner than maybe say the fall, as you indicated, is that basically the labor market right now it's no longer a source for inflation. And with that in mind, there is space to reduce interest rates because the fact believes that the policy right is still restrictive. Does that not convince you enough right now?
Not completely, because remember, inflation has been above our target for some time, well above our target during periods of time, and there's a sense where people really want us to get that down. Inflation is a tax on people, and every time we let people continue paying that tax, it erodes their well being. So I'm very focused on getting inflation down to two percent us. Being sure that we're on that sustainable path as long as the labor market
doesn't show signs of weakening is really important. So you have to make a view. You have to have a view about what you think tariffs will do to inflation. Now, my own view is that they will potentially raise inflation, that's my motal outlook, but they should dissipate over the period. It's not going to be something that builds into inflation expectations, and thus we really have to against it. But we can't just be assuming we know just because that's our
modal outlook. We have to really collect the information and understand. Remember, data dependence isn't a backward looking activity, it's a forward looking activity. Right now, we're looking forward by talking to our contacts, and they still feel uncertain about what they will do. They're going to try to pass some along, but they, as a number of people you've had on your show have mentioned, firms don't have all those abilities, whether they're managing their brand or just they have exhausted
consumers who can't take anymore. That's what we're waiting to find out. But I don't think we're behind in our waiting. Policy in a good place. The economy is in a good place, and that's what we'll continue to monitor President daily.
How much of a lesson was it last year when the FED cut by one hundred basis points only to see long term yields rise significantly in the face of growth and inflation expectations. Is that something that you worry about could happen now? You know what?
Really, financial markets are an input to our to my decisions, not an output that I'm worrying about. And ultimately, you know, we want to see financial conditions align with what we're trying to do for the economy, and we'll adjust as need it. But you know, we make policy. There's many
things that affect yields. We make policy that we believe will be with the lags of monetary policy supportive of both of our goals, and so I haven't I don't spend a lot of time wondering what the bond market will do, especially given there's so many things going on in the bond market right now. It's been quite volatile. So really it's about what did financial conditions overall do and what does that do to growth and activity and inflation?
Does it restrain it or or support it? And that's that's where my focus is as it helps on input.
Just co President, I just want to squeeze this in. What would life be like with a permanent role in Washington, d C. Compared to say San Francisco? How would that feel hotter?
But seriously, you know, one of the things that I've I've my experience with the Federal Reserve is you have to contribute from wherever you sit. And that's what we all do when we get around that table. There's nineteen of us, and we don't think about who is in what role. It's really how do we debate, discuss, bring our best thinking and our best disagreement to bear so we can make the right decision at the right moment for the people we serve.
President Donnie appreciate your time, very diplomatic. As a wise