Fed's Mary Daly Talks Inflation, Monetary Policy

Summary

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Episode Overview

Podcast: Bloomberg Talks
Episode Title: Fed's Mary Daly Talks Inflation, Monetary Policy
Date: November 10, 2025
Guest: Mary Daly, President of the Federal Reserve Bank of San Francisco
Host: Bloomberg Interviewer

In this episode, Mary Daly discusses the Federal Reserve’s current stance on inflation, productivity, and monetary policy. She debates whether today’s environment more closely resembles the inflationary 1970s, the productivity-driven 1990s, or something entirely new. Daly addresses criticisms of the Fed, the challenges of interpreting labor market data, and the role of technology and asset prices in shaping US economic policy.

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Key Discussion Points & Insights

Framing the Current Economic Environment

[00:22–01:37]

• Main Question: Are we in a 1970s-style inflationary scenario, the productivity boom of the 1990s, or something else?
• Daly says both inflation and productivity are key focuses. Inflation in goods is contained while inflation expectations remain anchored.
• Productivity is rising, even as the labor market slows, likely due to firms “doing more with less.”
• The recent 50 basis point rate adjustment helps the labor market but keeps policy restrictive to tame inflation.

Quote:

“If you look at inflation, you're seeing that it's been pretty contained... Inflation expectations remain very well anchored.”
— Mary Daly [00:53]

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1970s vs. 1990s: The Historical Analogy

[01:37–04:32]

• 1970s Parallel: Persistent inflation would require prolonged restrictive policy.
• 1990s Parallel: Rising productivity could allow for longer economic expansion without sparking inflation, as during the Greenspan era.
• Daly is monitoring both direct survey data from firms using AI and input from employers regarding pricing to gauge which path we're following.
• She emphasizes uncertainty, advocating for an "open mind" as new data emerges.

Quote:

“We can't know ex ante... We just have to have an open mind about which one it could be and maybe other periods of history.”
— Mary Daly [02:52]

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Neutral Rate and Policy Responses

[04:32–05:36]

• If the risk is 1970s-style inflation, the Fed would need to “hold policy tighter for longer.”
• If productivity is the main driver (like the 1990s), the economy could run “a little bit longer” before rates rise.
• Daly stresses the importance of talking directly to companies/workers rather than just relying on headline data.

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Focus on Inflation and Productivity

[05:36–06:36]

• Daly describes promising but early signs that AI is boosting productivity even in non-tech sectors.
• She's “keeping [her] eye completely focused on inflation” despite enthusiasm for productivity gains.

Quote:

“While I'm looking for productivity gains... I'm also keeping my eye completely focused on inflation to make sure that it doesn't pick up.”
— Mary Daly [05:15]

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Criticism of the Fed: Has It Taken Its Eye Off Inflation?

[06:36–07:00]

• Daly disputes the notion that the Fed is ignoring inflation, noting that underlying trends (excluding tariff-impacted goods) are stable, and wage pressure is moderating.
• She warns against over-tightening and potentially “injur[ing] the economy.”

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Labor Market Dynamics: Demand or Supply Shock?

[07:00–08:04]

• Massive slowdown in payroll growth is observed. Daly sees evidence of a negative demand shock rather than just supply constraints.
• Wage growth is slowing even in sectors with higher immigration, indicating reduced employer demand.

Quote:

“If it was simply about supply... you would find wages going up... But that's not what you see. So to me, that's a demand shock.”
— Mary Daly [07:23]

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Asset Price Inflation and Productivity

[08:04–09:34]

• On concerns about asset bubbles, Daly says financial conditions are only one input. She focuses more on underlying productivity potential of technologies like AI.
• She argues that, regardless of the “transformative vs. business as usual” tech debate, both views expect productivity gains.

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Monetary Policy Transmission Effectiveness

[09:34–10:53]

• Daly refutes the claim that monetary policy is ineffective.
• She points to rapid rates pass-through to areas like mortgages and slower inflation as evidence that policy adjustments do work—though with lags.

Quote:

“This argument that we've somehow lost our power... I simply don't see it in the information.”
— Mary Daly [10:00]

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Working Without Government Data

[10:53–12:10]

• Daly discusses how the Fed relies on both government data and private surveys.
• She values “on the ground” intelligence—“go[ing] to the parking lots of your favorite retail stores... airports are full”—as critical during economic inflection points.

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Fed Division and Debate

[12:10–13:26]

• Daly denies unusual division within the FOMC, framing it as healthy debate rather than discord.
• She argues that such differences are strongest at inflection points in the economy, benefiting decision-making.

Quote:

“It's a misnomer to think people always agree... Debate... is really healthy in a debate about making policy in an uncertain time with no truth.”
— Mary Daly [12:28]

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Memorable Moments & Notable Quotes

• “You lost workers, but you lost jobs at the same time... We're definitely in a low firing, low hiring period.” — Mary Daly [07:30]
• “Everybody agrees on one thing, it will change productivity at the same time.” — Mary Daly on AI [09:32]
• “You can go to a sporting event or a concert... What you see is an economy that is slower than it was... but they're still out there participating.” — Mary Daly [11:24]
• “I see that [debate] as a strength of the committee...” — Mary Daly [12:38]

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Important Timestamps

• 00:53 — Daly outlines current inflation and productivity trends
• 01:43–03:02 — Daly contrasts 1970s vs. 1990s policy implications
• 05:15 — Daly underscores vigilance on inflation despite tech optimism
• 07:23 — Insight into what payrolls/wage data reveal about labor market dynamics
• 09:34 — On monetary policy’s transmission and asset prices
• 11:24 — Value of non-traditional economic observation (retail, airports)
• 12:28 — The nature and value of internal Fed debates

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Tone & Language

Throughout, Daly speaks with calm confidence and a data-driven, slightly conversational style, emphasizing caution, the importance of “open-mindedness,” and the need for continuous, ground-level observation and debate.

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Summary

This episode provides valuable insights into how the Fed balances inflation and productivity signals at a time of historical uncertainty. Mary Daly presents a nuanced view between historical parallels, highlights the ongoing need for data-driven and qualitative inputs, and offers reassurance that policy debates within the Fed are a necessary strength.

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Transcript

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[Interviewer/Host]

News let's turn to the Federal Reserve policymakers remaining divided ahead of the December meeting. The San Francisco Fed President Mary Daly writing in a blog this morning, we must ask ourselves, are we in the 1970s or the 1990s? We can't ignore the 70s or the post pandemic inflation run up, but we can't ignore the rest of history either. The Fed president Mary Daley joins us now for more. President Daddy, welcome back to the program. Always good to see you. Let's just start with that question that you ask yourself. What's guiding your assessment of where we are?

[Mary Daly]

So I'm looking at both inflation and productivity. And if you look at inflation, you're seeing that it's been pretty contained so far in the goods prices which have been directly tariff drift. And then you look at the other parts of inflation, you just don't see much of a run up. So that's good news. And inflation expectations, what people expect, remain very well anchored. Look at productivity and you see that productivity is rising, GDP growth is rising while the labor market is slowing. So that tells me there's a little bit of that boost coming from firms looking to do more with less. But that's also causing a slowdown in the labor market. So the 50 basis point adjustment we've made has helped support the labor market but still keeps policy restrictive so that we can put downward pressure on inflation.

[Interviewer/Host]

President Daly, what are you looking at to determine whether it's the 1970s, the 1990s?

[Mary Daly]

Well, I'm going to really look at things that improve productivity to think about the 90s. And it's more than just the stock market valuations for AI companies. It really is about the companies out there who might be using AI and then asking them, going directly to them and asking them what's it doing for your bottom line and how are you using it? And what we're hearing are pretty encouraging but very early signs. They see how it help their bottom line, how it can improve their productivity, even how they can be supportive of their workers, give them more interesting work, take the less interesting work away. But they all tell us it's early days. So more to come on that. And then on the inflation part, are we in the 1970s really asking employers and firms what are you doing with prices? Are you thinking about raising your prices? How are you going to think about losing volumes if you do so in a slowing economy, especially for consumers, you know, from the 50th percentile down. And putting those two things together, I think will get lot of clarity about which direction we're heading. And with policy been slightly adjusted, we are in a good place to continue to evaluate the information before we make any decisions. We can't know ex ante before the data come out and before we get that information, really what we're facing. We just have to have an open mind about which one it could be and maybe other periods of history. I didn't even mention, President Daly, how.

[Interviewer/Host]

Different would the neutral rate be if it were, say, more like the 1970s or more like the 1990s? Just how different would Fed policy be in response to one or the other paradigm?

[Mary Daly]

Well, you know, there's many nuanced ways it could affect the neutral rate, but I can back up from that and just ask, what were the policy remedies? If you think we're about to have an inflation run up, then we obviously would have to hold policy tighter for longer because we wouldn't want that to occur. You know, honestly, Americans have endured, you know, already too much inflation, and we really need to get that back down to 2% to restore price stability, as we've committed to. On the other side, if it's productivity, you would start seeing the economy able to run a little bit longer. Maybe if you go back to the debates of the 90s, you know, we, we saw the labor market slip. Workers were insecure, but the labor market had unemployment that was fairly low. And many at the time were worried that could spur inflation. But Greenspan, Chairman Greenspan held on with his colleagues. They didn't raise rates. And what you saw was, you know, the 90s, which was a booming time, and we ended up around target inflation and we had a productivity boom. So you're trying to balance those two things together. And it means not looking just at headline information, but getting below that information, talking to firms, talking to consumers, talking to workers, really on the ground work, like we do at the Reserve Banks and other places. The Fed is built to do this on the ground work as well as look at the published data.

[Interviewer/Host]

President Daly, reading the blog post this morning, it seems like you're leaning more toward the 1990s side of things than in 1970s, is that right?

[Mary Daly]

Well, you know, right now, you know, I'm in the west in I have the nine states in the Western United States, and it's not just Silicon Valley that seems interested in AI. No matter who we talk to, whether they're, you know, small businesses, medium or large businesses, manufacturing, tourism, etc. They're using AI in a way that they say is going to improve their productivity and they're already seeing parts of it. So when I see that, I'm like, okay, we need to focus, think about that. What really will spur this is an ongoing thing is if they start to change their business processes. So that's what I'm looking at now. That means. But, but I guess a different way to say that is we cannot take our eyes off inflation again. Americans have endured high inflation too long. That's our mandate. So while I'm looking for productivity gains and seeing if they're going to continue, I'm also keeping my eye completely focused on inflation to make sure that it doesn't pick up in a way that would suggest we need to do more or we need to hold longer.

[Interviewer/Host]

President, how would you respond to the criticism that Federal Reserve as an institution has taken its eye off inflation, that inflation is closer to three than it is to two and the Fed's been cutting interest rates?

[Mary Daly]

You know, I don't think that if you unpack the inflation data you really see signs of that. It's true that headline inflation is printing at that level, but you have to take apart that inflation and ask how much of it is the effect of tariffs passing through to goods prices that we expect to be a one time price level adjustment and not a consistent run up in inflation. If you unpack the data, what you see is you don't see see inflation running up in services or housing and importantly, you don't see it spreading into inflation expectations. That would be the thing that would continue to run up inflation going forward. We also see a labor market that's softening and wage growth that is moderating. So you're really not going to see a lot of pressure coming on the cost side of labor. So I put those things together and we don't want to make the mistake of holding on too long for rates only to find out we injure the economy.

[Interviewer/Host]

President Daddy, can we just pick up on the cost of labor? I think this is really important right now, clearly, and it's hard to dispute this is in the data. We've had a massive step down in payrolls growth. What's behind that is a little bit more confusing. Is it demand? Is it cyclical? Is it structural? Is it something else like immigration? What's your tell right now? What can you Point to that helps tell you it's one thing over the other.

[Mary Daly]

Yes, you look at prices in this. In this case, the price of labor is wages. If it was simply about supply and firms were still scrambling to find workers to fill what was jobs that were supported by the previous immigrants, you would find wages going up as they bid for workers to try to fill those jobs. But that's actually not what you see. You see wage growth slowing even in sectors where immigration played a larger role. And so that to me tells says it's a demand shock, a negative demand shock, along with just a coincidental negative supply shock. So you lost workers, but you lost jobs at the same time, or you had job growth slowing. And what we're seeing now is, is does that continue to net out right? If. What if the supply of workers doesn't keep going down, but the demand for workers does? Well, then we'd end up with a rise in unemployment. So have to keep squarely focused on those types of things. We're definitely in a low firing, low hiring period and interrogating that labor market, continuing to watch the information, see what firms do next. That's going to be the important part.

[Interviewer/Host]

And it's something that a lot of people have said really is the case. Shape the idea that particularly on the lower end, you have not seen wages keep pace with the rest of the income spheres. I just wonder though, how much we are seeing a massive amount of inflation in asset prices and how that feeds into what you're looking at, especially at a time that may rhyme with the 1990s, and we know it happened after the 1990s. How much do you weigh that? How much do you have to pay attention?

[Mary Daly]

Well, you know, one of the things that you do. So financial market conditions are one input into our decision making, that one of many inputs. You know, we have two goals, price stability, full employment. We're trying to think about what inputs affect those, those two variables, those two goals. But what I look at is if you look under the valuations, you know, people are really talking about one of two things. This is going to be a transformative technology. AI is going to change the world to be like electricity or the steam engine. And then the people who are a little more skeptical are saying it's going to be a business as usual technology. Think of computers and the Internet. The thing that's true about both of those is they're both productive. You get productivity from both of those. They both help with growth, they both help the pie in the US Expand. And so we're not talking about a bunch of ideas with no backing. We're talking about, you know, equity investors, not highly leveraged, going in and making banking bets really on whether it's going to be transformative or business as usual. But everybody agrees on one thing, it will change productivity at the same time.

[Interviewer/Host]

President Daly, some people would suggest that yes, you will see stocks continue to go up in the face of another rate cut, but at the same time the transmission mechanism of, of the additional cuts are slower to take place. It's less efficient in terms of the pass through just based on how much lending there is, whether it's in the private lending sphere or beyond. How do you measure these things at a confusing moment?

[Mary Daly]

Well, you know, I guess this argument that we've somehow lost our power, monetary policy doesn't transmit. I simply don't see it in the information. If you go out and you look at what happened when inflation was running really, really high, we raised rates pretty aggressively and mortgage interest rates rose rapidly, car loan rates rose rapidly and the economy slowed, inflation came down. Right now what I'm seeing as we adjust rates, mortgage interest rates come down. Not one for one. That's not how it works. Usually is less than one for one, but they come down. You see a little more activity in the housing market, you see a little more activity in the borrowing market more generally, and you see that dynamic work. So I guess the most important thing is just to remember that monetary policy acts with a la and right now we're making decisions not just for what's going to happen next week, but what's going to happen in the next six months to a year. So that's how we have to think about it with our forecasts and then how we adjust policy as those forecasts evolve.

[Interviewer/Host]

How frustrating has it been not to get government data?

[Mary Daly]

You know, I really want the information, the fullest amount of information we can possibly get. But one of the things that I think may be underestimated in, in, in public about what the Fed does is we're regularly relying on government provided data. That's the gold stand data in the world. We're also relying on private sector surveys which have been collected for many, many years and we can correlate them with, with the government collected data over time and know exactly how they relate to one another. And then of course there's really no replacement, especially at inflection points in the economy for talking to businesses, workers, communities and you know, consumers asking people what they're really doing. And then, you know, I like to do this. Go to the parking lots of your favorite retail stores and look at how many cars are in the parking lot and what people are. That tells you a lot. You know, airports are, are full. People are out there. You can go to, you know, go to a sporting event or a concert, see how many people are there. What you see is an economy that is slower than it was. Consumers that are not. They're more picky about what they spend on, but they're still out there participating in the economy. And that's how we get the information we need to make the right decisions that are according to our mandates, but mostly for the American people.

[Interviewer/Host]

President, you've been working with the Fed or on the Fed Committee for a long, long time on these, in these debates. Have you ever it more divided than it is right now on the fomc?

[Mary Daly]

You know, of course, I mean, look at that. If you look at the transcripts in the meeting minutes and, you know, it's helpful. Go back and look at the 1990s debates and go back and look at the commentary around the 1970s. You know, it is a misnomer to think people always agree the right way to think about it, in my judgment, this has been my experience. Is that the debate we have? I wouldn't even call it division. I would call it differences of opinion that are really healthy. In a debate about trying to make policy in an uncertain time with no truth. We don't have truth. We have forecasts. We have our best estimates. We have taking the evidence and then taking it again and looking through it with, with different lenses. I see that as a strength of the committee, a strength of the Federal Reserve, and importantly is it is delivering the best possible decisions we can make. So I have seen this many times before and I think it's always at inflection points that you see the broadest amount of disagreement. And it's exactly what I hope people would want from a committee making decisions on inflation and full employment. It really does help us make sure that we're doing the best we possibly can.

[Interviewer/Host]

So you happy to confirm on the record you have not seen Governor Myron and President Smith in a fight in the CJ Meeting? Can we confirm that? President daily today. That hasn't happened.

[Mary Daly]

You always try. And yet I'm not a rookie.

[Interviewer/Host]

Mary Daly, thank you as always. Good to see you.

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