Bloomberg Audio Studios, podcasts, radio news. The debate is rich around AI's economic disruption. Is it growing more intense? Some see the technology that can unlock enormous gains productivity and growth, but others that they want of disruption, of unintended consequences. And we want to try and understand the sort of messy middle of all of this with Mary Daily, President
of Federal Reserve Bank of San Francisco. Mary Daily, extraordinary the data that you now have to lean upon trying to understand what's fact, what's fiction, what's utopia, what's what sensationalism? Who do you go to for your for your data on whether productivity is working?
I thought of the businesses who were using the technology, because you can always encounter enthusiasts or doom sayers, but it's really the people in the middle, as you said, who are using that technology thinking about it, and I've seen tremendous interest in it it last year and now I'm seeing tremendous investment in it, thinking about how do they train their workforces to be ready, how do they think about what AI can do not just in the back office, but in the front of house of operations
and We're seeing this in small businesses, medium and large, in global companies and more regional ones, and importantly in everything from agriculture to machining and building things to services. And I think that's really the place we haven't seen widespread productivity gains yet. The ROI is still to be developed, but I'm definitely seeing the enthusiasm, and it's picked up tremendously in the last year.
We haven't seen the productivity gains yet. You know you're being very clear on that. As you remember, I asked you over and over again for an hour, please show me the productivity gains. But in the economic data, whichever set of data you want to look at, do you see an impact from AI negative or positive?
It's really hard to take.
We have had productivity growth that's been outside of the historical norm, and I think that's a positive for the US economy.
Everyone wants to say that's AI.
What I think of it is as sure, it's possible that businesses are looking for cost savings and they hire fewer workers than they do just as much because they're using an.
LA I'm assistant to help.
But we just haven't heard from businesses that they're seeing transformative ongoing productivity gains yet and they want to always underscore yet. And so then I said, well, what's the time frame and they said next year, year after. Because what we know is it isn't just about getting a model and using it for things or an agent. It's about transforming your business processes so that you really take advantage of things we don't even think about today, what
can be done differently that we'll transform the economy. So you can definitely find a single business or sectors who are using it and seeing the gains, but we haven't seen that across the economy going forward.
But I'm pretty bullish.
I see the possibilities, and I'm hearing more and more that people are seeing early rewards and really recognizing them.
Next year is the litmus test.
But this is an interesting kind of phrase today, putting aside this slight dip in the market, the exuberance that we have seen in financial markets to want to back these companies, and we're about to get more public companies coming, more liquidity, more money. Is that in and of itself a financial stability issue. You worried about the market's rioting so high.
You remember, you know who's doing most of this investment at the mag seven who's really there. This is actually something they can do and fund, and their enthusiasm is real. They see what's possible. But I don't think that we should think, oh, there's financial stability concerns just because the market's going up. It could go up or down as it has in the past, but a financial stability issue would mean it's spread to the banks, it's spread to
consumers or businesses. Right now, I'm not seeing evidence of that. We keep our eye on it for absolute sure, but what I am seeing is that companies other than the technology enthusiasts, companies outside of technology, are using AI to think about how to do their business better in real ways.
I mean, I was just meeting with some machine to make machines for a living, that's what they do, and they're thinking about, how do I scan in fifty years of plans of these machines I've built for companies and then use those plans and the model to generate innovative new ideas of things I can sell that will be faster, better, cheaper than things I've sold before.
We toured a robotics company.
That builds things that help manufacturers do better in terms of shipping and distribution. These are real things that do have a capacity to change the economy. So that's why that's the underlying part of my bull is it has less to do about the investments that tech companies are making and more about the investments that every day regular companies that make things and provide services, the things they're.
Doing president daily.
Inflation is still the biggest risk and the those are not my words. We heard it, you know, all week long the Bloomberg Credit Forum, for example.
One of the things that you and I have.
Discussed in the past is is the massive CAPEX commitment build out of data center in conjunction with a bottleneck in some core areas like memory inflationary or is it disinflationary? You know, that's the thesis that like a utility of pgene would argue disinflationary because the big guys are buying and aggregate. I still don't understand where we are with that.
It's a timing issue in my judgment that you know, in the beginning of course, when companies want to invest in big construction projects a lot of electro electricity demand, then the companies that are providing those things or areas that are providing those things are going to see competition for the limited amount of services they have, But what they're building creates the infrastructure. The data centers create the infrastructure.
Or if the big.
Guys come in as you just said and help with electrical plants that help with electricity generation, that eventually can help with the prices of those things.
Don't hear it now, but you just.
Have to think about the timing.
And one of the things is really important in policy making is that we not assume we know. We actually look for the evidence of what are we seeing in prices today, what are we seeing in what is the forecast of prices tomorrow? And then how do we think about policy. So right now I'm focused on you know, other energy prices, oil prices, and food prices are driving
up inflation. What we do know that down the road these things could maybe compete for services and costs and raise costs, but we haven't seen real evidence that that's the limiting factor. The limiting factor seems it's hard to get generators, it's hard to get the infrastructure equipment you need, and so you see the big tech companies thinking about solutions they can provide for themselves.
The inflationary dates must be fascinating here in San Francisco. When I think about all these companies potentially going public, well, that means for the employee base, Well that means for your health price and the ability to.
Be able to buy yet more readA state here. What it means for the cost of late as well?
Is there an infrationory pressia that you're seeing in some I've lived through.
So I moved to San Francisco in nineteen ninety six and then we had the dot com and I know what it feels like to not be able to rent a place that's affordable because the people who are making milliony more.
Orders of magnitude.
And I was, you know, in a position where that's manageable. But that's what's happening is people feel like they're getting crowded out because other things are happening. But that's more about the supply of housing than it is about the demand for housing. We want people to come and invest in this community. We want the city to thrive, We
want regional activity to thrive, in employment to grow. But as you said, you know, the more interest people have in living in a place if you have limited supply of housing, then you're going to have a run up. So those are the things that not the FED, but other policymakers, other federal policies of makers, and local policy makers like the mayor are working on.
But it looks very you know, you can see the.
Elements of nineteen ninety six already here, where there's productivity growth, there's enthusis sasm et cetera.
But the data bubble is there a risk that we're in that saying, you.
Know, the dot com was very different than the AI boom, and so I just want to you know, there's a lot there that's already being put into businesses and it's very pervasive.
It's not just the dot com.
So I don't jump to the conclusion that if it has similarities to the nineties, it's going to be the.
Ninth Well, if I may presentay, you went out and did some of the most important work in that era of how the advent of the internet would change the economy. Look, so you've kind of established where we sit right now. Inflation continues to rise, how likely or unlikely would that make a rate cut in twenty twenty six? How do you tie the two together? From this juncture onward.
You know, I think one of the questions I get asked regularly is what's the path for the rates going forward? Yeah, And the answer I give, because this is how I really think we have to think about it, is we don't know how the economy is going to play out. We have, as we've been talking about, this tremendous possibility with AI, but we have the same time, the war in Iran, that is with an uncertain end, which has pushed oil prices up and fertilizer prices which have filtered
into food prices. And right now those are fairly contained. And if you look at the futures market for oil, it's eighty dollars a barrel by the end of the year. But we have to think about that, and so right now policy is in a good place. We are prepared to respond either way whatever the economy brings. But I think giving more forward guidance about what's possible could be misguiding in the end, because we just have to wait
for the economy to evolve. Everybody wants to resolve the uncertainty today, but I think that's a mistake because it will close off our mind about what we really have to look at the inflation risk possibility, but also the possibility that the war ends, oil prices come back down and we're back to the underlying dynamics with some of the positives of AI we've been talking about.
Can I ask you about the labor market as well, because you've tried to bring this transpondency of thinking about things with your blog, for example, and one of the really interesting ones that I was reading and capture my attention was the idea that we've got zero labor growth now. Immigrations changed the way in which demographics change. Are you feeling like we've seen some improvement, some some resilience in the labor monket gap and will that hold?
Has it firmed?
Yeah, you know, I think it's too early to stay firmed. I think we're you know, there's always statistical air, so you can bounce around from month to month. But if you you know, I was one of the people who policymakers who were a little worried about the labor market at the end of last year, was very supportive of the cuts that we took to stabilize conditions there. So relative to that point, I think this is we've really stabilized and I'm starting to see businesses feel a little
more cautiously optimistic, which will feed through to hiring. But they're not being you know, they're not just running out to hire people they are right and you get an agent. They're interrogating how much AI can do for them before they hire. And you know, regularly we talk to our businesses and they say, we don't want to hire a bunch of people. Find out AI can do certain things, and we did a different set of skills, So we want to wait. We want to be patient on our
hiring and make sure we're not over hiring. Because if you ever go through a period of time where a business has to lay workers off, it's a painful experience for the workers in for them, and so they just don't want to get overly confident only to find out they have to make adjustments.
So that caution will be with us for a bit.
We are live on Bloomberg Television and Bloomberg Radio.
We're in San Francisco.
And we're at the Bloomberg Tech event, and we're speaking with San Francisco FED President Mary Daily Reset a little bit. But if I may, it's the first opportunity we've had to ask you, have you spoken to Chairman Walsh about how he sees the FED evolving about changes to the institution and if you may fold in the context of your district San Francisco Fed. Yes, much more than that and your role going forward.
Sure, absolutely, So, you know, I think what we really want when any new chair comes in, and what we want from all of our leaders of federaliserve banks and all of our governors, is that you're thinking constantly about how can the FED be better? How can it better serve the American people? How can we do our work more efficiently, more effectively, and more resiliently. You know, ultimately
everything we talk about is put between two bookends. We are fiduciary stuarts of public trust, which means we better have services that people can depend on and we better work hard to.
Achieve our goals.
And we're fiduciary stewards of public funds, which is we are very careful about how we spend taxpayer dollars. So with those two things in mind, you know, I mentioned I joined the FED back in the nineties. So I joined the FED in the nineties and we had check processing member checks, We had check processing.
I thought the right legs.
Everywhere, everywhere in the everywhere we had a location, we had people who process checks, but then check demand started to fall and so we consolidated those actives.
But he's into a few locations.
And that level of modernizing, constantly thinking about how can you do better?
Is what I see now.
So what is the chairs equivalent of that.
Just joined?
So I'm going to give him the right time he has to announce that. He's talked about making sure he's holding onto that tradition, and he comes in with a lot of ideas. But you know what I've heard him say again and again, which I really appreciate because all he's the fifth chair I've worked with.
All of the chairs I've worked with have the same basic compass.
It is to do our best work for the American people and work with all the individuals who are earnestly doing their work in the FED to do it well.
And I see that in chair worsh that.
Earnest work within the FED. How much of that is being was anized to use adult AI. How hord or easy is it at the moment when you're such a regulated the institution in and.
Of yourself well we're careful, like all regulated institutions, and importantly like all businesses. Businesses, and when I talk to businesses, the last thing that want to do it's a huge risk that destroy their shareholders. They're the value of their company. The same is true for us good fiduciary stewarts of public trust and good fiduciary stuarts of public funds, which means we're always driving to adopt new technology to do our work more efficiently, but we recognize we have to
do that safely. You know, people want to know they get and get their money when they need it. They want to know that the banks are well supervised. They want to know that Monterey policy is not made by machines.
It's made by people making judgments not.
Only about models and rules, but also about the lived experiences of people across our country.
Very quickly, before the show ends, what are you saying in credit? That's a big story for us in how data centers are financed.
For some it's very worrying.
Well, you know, we're watching that carefully. I watch that carefully.
What we do see is that there's a lot of there's those companies investing a lot of their own resources in those so it's something to keep our eye on. But at this point, you know, again, if if you stack rank the things that are worrying today, I'd say getting inflation back to target, Getting Americans the relief they deserve that we've been working on for quite a while.
That's my number one priority.