San Francisco Fed President Mary Daly Talks Fed

Summary

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Bloomberg Talks: San Francisco Fed President Mary Daly Talks Fed

Date: May 7, 2026
Host: Bloomberg
Guest: Mary Daly, President of the Federal Reserve Bank of San Francisco

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Episode Overview

This episode features an in-depth conversation with Mary Daly, President of the San Francisco Federal Reserve, discussing the Fed's current policy outlook, inflation expectations, the influence of supply shocks and tariffs, Fed communication practices, and the pending transition to a new Fed Chair. The discussion provides key insights into internal Fed debates and how policy is being shaped amid economic uncertainty.

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Key Discussion Points & Insights

1. The Fed's Current Policy and Forward Guidance

Timestamps: 00:25–03:14

• Holding Steady:
  Daly supports the unanimous Federal Open Market Committee (FOMC) decision to hold rates steady, highlighting market expectations have already priced in a "higher for longer" scenario.

  • "The right policy decision was the one everybody agreed to, which is hold the rate steady, continue to collect information." (Mary Daly, 01:23)

• Market Interpretation:
  Markets are equally weighing a cut or a hike, but holding steady is most probable.

• Communication Strategy:
  Focus is on Fed actions rather than statement phrasing—public and markets look at signals more than specific wording.

2. Inflation Risks and Expectations

Timestamps: 03:15–05:41

• Risk Assessment:
  Ongoing global conflicts and oil price shocks are central unknowns; if these resolve, restrictive policy should bring inflation down.

  • "If the conflict ends and oil prices come back down...then I expect the underlying dynamics...policy is slightly restrictive, continues to put downward pressure on inflation." (Mary Daly, 03:35)

• Fed’s Target Commitment:
  Daly reiterates commitment to the 2% inflation target.

• Expectations Anchoring:
  Short-term consumer inflation expectations are influenced by immediate price shocks, but medium and long-term expectations remain stable.

  • "What we really have to focus on is does that translate into a move in medium term inflation expectations...You really don't see that right now." (Mary Daly, 04:42)
  • She notes minimal pass-through from businesses to consumers so far.

3. Impact of Tariffs and Supply Side Shocks

Timestamps: 05:42–08:31

• Tariffs as One-Off Price Shocks:
  Most companies have not passed the full tariff burden to consumers; ongoing adjustments are stabilizing.
• Cumulative Shocks & Public Perceptions:
  Powell’s concern about repeated supply shocks raising inflation expectations above 2% is discussed, but Daly defends that anchors remain firm.
  • "I don't see a lot of evidence in the data that longer or medium run inflation expectations have drifted off the 2% anchor." (Mary Daly, 08:17)

4. Transition to New Fed Chair & Policy Debates

Timestamps: 08:32–12:12

• Smaller Balance Sheet Debate:
  Daly discusses the complexities and optics of a smaller Fed balance sheet, emphasizing the need for liquidity while recognizing public misunderstandings.

  • "The balance sheet comes with optics that are hard to control and people worry about the footprint...providing liquidity is an important component." (Mary Daly, 09:04)

• Scarce vs. Ample Reserve System:
  She keeps an open mind on the optimal balance sheet approach, awaiting deliberations under the new chair.

• Communication Tools (ACP, Dot Plot):
  Daly acknowledges the limitations of delivering precise forecasts in uncertain times, advocating for the value of scenario analysis over point estimates.

  • "The idea that you're going to provide a lot of precision when you have a very uncertain future, is just...a false precision. We don't have it." (Mary Daly, 10:49)

• Transparency and Communication:
  Calls for ongoing evolution in how the Fed communicates, insisting on collective decision-making before adopting new tools or approaches.

5. The Debate Over Fed Communications

Timestamps: 12:13–13:28

• Is There Too Much Fed Talk?:
  Responding to incoming Chair Kevin Warsh's critique of “too much” Fed communication, Daly emphasizes the purpose: explaining the Fed’s reaction function and policy rationale to the public.
  • "We're trying to explain why...the policy choices that we're making or thinking about are really for the American people." (Mary Daly, 12:33)
• Importance of Real Dialogue:
  Daly looks forward to open debates under Warsh’s leadership, underscoring the value of robust deliberation.

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Notable Quotes & Moments

• On Policy Consensus:
  "For me, the real signal about the meeting is that everyone agreed to the decision and that the communication that the chair made in his press conference is, you know, higher for longer relative to last year." (Mary Daly, 01:22)

• On Inflation Expectations:
  "I think the economy's in a place where I wouldn't jump to the conclusion that we're going to have persistently high inflation. I would jump to the data and say what can we see?" (Mary Daly, 05:07)

• On Overreacting to Shocks:
  "Overreacting to the news or the expectation that something's coming down the pipe can be as damaging to the economy as underreacting." (Mary Daly, 07:01)

• On Communication Evolution:
  "Transparency and communication are critical to having an accountable Federal Reserve. And how we communicate should be studied, maybe change to meet the moments that we have in front of us." (Mary Daly, 11:43)

• On Boardroom Debates:
  "He does mean what he says when he says he wants to have real debates, real discussions and I look forward to those." (Mary Daly, 13:15)

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Timestamps for Key Segments

• Fed Policy and Decision Rationale: 00:25–03:14
• Inflation and Inflation Expectations: 03:15–05:41
• Tariffs and Supply Side Shocks: 05:42–08:31
• Fed Balance Sheet & Future Communication: 08:32–12:12
• Fed Communication Philosophy: 12:13–13:28

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Summary

In this candid conversation, Mary Daly provides a look inside the Fed’s reasoning for staying the course on interest rates amid global uncertainty, offers reassurance on inflation expectations, and signals openness to communication and policy changes under the new leadership of Kevin Warsh. She consistently stresses data-driven patience, robustness of inflation anchors, balanced reactions to shocks, and the continuous evolution of Fed transparency. The episode is a clear, accessible window into the nuanced debates currently shaping US central banking.

Transcript

[A]

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[B]

Bloomberg Audio Studios Podcasts Radio News well, good morning

[C]

from San Francisco and thank you very much to all our listeners and viewers around the world. And thank you to Mary Daly for join joining us today. I have to start off by saying after we had the Fed decision Bloomberg had on a Wall street analyst who said the important thing now is to find out what Mary Daly thinks because she was kind of on the dovish side and yet she's not an extreme dove. So I want to get your feelings on it. And the story was the dissenters on the bias for the forward guidance. Would you agree with their position? You weren't a voter, but did you agree with their position?

[B]

You know, I don't see a lot of confusion in the public when I go out in my communities, talk to businesses, talk to consumers, households. I don't see a lot of confusion. They know the Fed is committed to price stability, that that's our first priority. Right now the labor market is stabilized. They see that from the adjustments we made last year. So for me it's really about the right policy decision was the one everybody agreed to, which is hold the rate, study, continue to collect information. And you see in markets pricing, even today markets have priced in, you know, equal pro probabilities of a cut versus a hike. And the most likely probability is that we hold steady. And I think that's well positioned. So for me the the real signal about the meeting is that everyone agreed to the decision and that we the communication that the chair made in his press conference is, you know, higher for longer relative to last year. But the households, businesses and markets had already priced that in.

[C]

Your colleague for Boston, Susan Collins told us yesterday that the phrase about additional move moves is associated in people's minds with a cut now because it's been following so so many times. Do you still feel that that's the path for monetary policy?

[B]

You know, I it's sometimes sad for Fed officials to realize this, but there are very few people other than all of you and Fed watchers who look at our statement. Most people look at how we position ourselves. And there I would say that most people aren't worrying about that phrase. And so I think the phrasing of the statement is less important than the actions of the fomc. And the actions FOMC have been to really focus on price stability when we think inflation is rising and really focus on being patient enough to see if, if the concerns we have are even going to materialize. So it all comes back to how long does the conflict last and if it's prolonged, then we might see more spillovers of oil and other commodity prices into other goods and services. And if it comes up quickly, it ends soon. Then, you know, the forward contracts on oil are for oil to come back down to around $75 depending on the day. And something where our businesses are telling us, oh, we're looking through the shock right now because we, we don't think it'll last forever, but it won't be forever that we can look through it. And consumers are doing the same look at the spending they're mostly looking through.

[C]

But policy wise, is the cutting cycle over now?

[B]

I don't think, I think it's really too early to tell. If we, if the conflict ends and oil prices come back down and that doesn't get passed into the broader economy, then I expect the underlying dynamics that we were facing prior to the conflict return, which is policy is slightly restrictive, continues to put downward pressure on inflation. The labor market is stable right now, but it's not creating any inflationary pressures and businesses are cautiously optimistic. So that's a good dynamic for the economy and one where I expect inflation to come back down to our 2% target. But the main issue is what is the risk out there? How does the oil price shock, you know, move its way through the economy? How long does the conflict last? And can we really get that 2% target that we've been, that we would working towards? That's, and that's what we're determined to do, is achieve that.

[C]

Can you get to that target? The Fed watches inflation expectations. The New York Fed survey of consumers today showed inflation expectations rising to 3.6% for the next year. Are you in danger of having those become unanchored?

[B]

You know, the short term inflation expectations are a reflection of what people are feeling right now at the gas pump, in the, in the grocery stores, etc. As come fertilizers and other things start to spill over. That is not something that indicates a drift of the anchor. What we really have to focus on is does that translate into a move in medium term inflation expectations or longer run inflation expectations? You really don't see that right now. But that's not satisfying to say. We don't see it. So it's not there. You have to dig deeper. What are we really seeing in Terms of wage negotiations, what do we see in terms of firms passing along things? So I spend a lot of time as you know, going around the 12 districts and I just don't find a lot of producers and, and sellers feeling like they can pass through the price increases to consumers and have consumers stay in the game. So you're seeing some surcharges emerge on energy, but other than that you're not seeing a lot of pass through as of yet. So I think the economy's in a place where I wouldn't jump to the conclusion that we're going to have persistently high inflation. I would jump to the data and say what can we see? And the inflation expectations being well anchored is an important component of, of our ability to be patient.

[C]

Well, we've been largely talking about energy inflation here. Tariffs are still on and according to the administration, there are more coming within the next month or so. What are companies saying about how they're dealing with this now that they're a year into it?

[B]

Well, right now they're, they're trying to get refunds if they're eligible for them and they're working towards that. But they didn't, you know, not all of them passed through the full tariff burden. They split it up on things and they see those burdens as rolling off that, that is more or less coming back to normal. You know, tariffs are a one time price adjustment and they, they calculate how much do I, how much can I take out of margins, how much can I share with other producers, how much do I need to pass along to consumers? So I would say that's in train and moving in the direction we had anticipated. The new information is that we've got an oil price shock added to that. While inflation has been elevated since, you know, for almost five years or five years. And so consumers are just feeling the ongoing of dealing with higher price levels and inflation that's above our target. So you know, the way I think about that is we have to continue to work towards restoring price stability. But overreacting to the news or the expectation that something's coming down the pipe can be as damaging to the economy as underreacting. So you have to balance both of those risks and really watch the information that we have. Not just the backward looking information about what inflation did last month, but the forward looking information about how consumers, producers and, and sellers are really responding to the challenges ahead of them.

[C]

Well, Chairman Powell in his news conference suggested that there is a concern, or at least he has a concern, that after a number of supply side shocks in the last five to 10 years, consumers are no longer thinking that 2% is normal.

[B]

Well, that's what we have to treat. Absolutely. So there is this, this whole concern and it's in the, the research literature, etc. That you can only put so much pressure on the goal. If we print higher and higher above the goal, that that actually bleeds into people's expectations. So that's one of the things I think is really important to study. I know we're both going down to Hoover tomorrow and it's going to be a topic of conversation. It's a focus of my, my research team's work and the research I think we're doing in academia to really think does this bleed through. But for now what we're doing is looking at all the other information and asking has it happened? And I don't see a lot of evidence in there in the data that longer or medium run inflation expectations have drifted off the 2% anchor. And certainly wage inflation is consistent right now with the 2% target. So, you know, that's it's right to look, it's right to study that, it's right to ask the question. You can't jump to the conclusion that just because it might be true, it is true.

[C]

You'll have a new boss next. Not boss because of the way the Fed set up, but a new chair next week, probably my fifth chair. By the way, congratulations. I'd like to run through a number of Kevin Warsh's ideas and see what you think of them. And the first one is a smaller balance sheet. And there are two ways of looking at that. One is just to bring the balance sheet down and use various ways to ensure there's liquidity. And the other is to go back to a scarce reserve system. How do you think about either one of those?

[B]

You know, it's interesting. I think this has been a topic for a long time that is really important for us to grapple with. The balance sheet comes with optics that are hard to control and people worry about the footprint, etc. And so, you know, I gave a speech back last year on how do we communicate the balance sheet, whatever it is. The truth is you figure out what you need to do. And I think providing liquidity is an important component. We don't want to risk, you know, businesses like we did in the financial crisis not being able to get liquidity even though they're well capitalized, simply because they didn't have that counterparty. So that's scarce. Liquidity is just a challenge for the financial system. But there are many ways to provide liquidity without actually being in the situation we're in. And I look forward to working with Kevin Warsh as chair and also all my colleagues to really think through that. I think the thing that the American people should know, your listeners should know, is there's two components of balance sheet policy. One is the plumbing. How do you actually do it? And the second is the, the explanation. How do you explain what you're doing? And how do you ensure that markets understand where you're going with the balance sheet? That we, you know, that the public understands why it's growing or shrinking and that ultimately we're, we're putting those two things together there. You know, the ECB does a different thing. They have ample on demand. We run an ample on supply. Certainly we can consider those types of things as well. So I'm, I'm, I'm in the point of. It's a good thing for us to study and I don't want to prejudge the conclusion because there's a lot of work we can do to figure out what the optimal way to do it is, not just from the plumbing, but also from the communication.

[C]

What about the acp, the DOT plot you have moved to talking about scenarios rather than exact forecasts. Is that something the Fed should do?

[B]

Well, you know, again, I'll leave it to my, the deliberations we take at the, at the fomc, But I do think scenarios, in a time when you have a lot of shocks coming your way are really important. You know, the, the strict forward guidance, and this goes all the way back to Bernanke and predates him when he was an academic, not the chair, is that, you know, the idea that you're going to provide a lot of precision when you don't, when you have a very uncertain future, is just, it's, it's a false precision. We don't have it. So then what do you do? Well, then scenarios can be helpful because they help the public understand what is most critical to understand the Fed's reaction function. You know, there are point estimates about what we think will happen in a month or two months or six months, and then what we would do if it happened. Those are much less interesting.

[C]

Would you get rid of the acp? Would you get rid of the dot?

[B]

I, you know, you're going to be dissatisfied with this, Mike, but I'm going to say that I think that I look forward to deliberations on all of these topics. Ultimately, the Fed's Communication has to and I've talked about this many times, transparency and communication are critical to having an accountable Federal Reserve. And how we communicate should be studied, maybe change to meet the moments that we have in front of us. And I think that's the real evolution I'm looking forward to. But I don't want to prejudge or stake out any territory about my thinking until we all have a chance to deliberate it collectively.

[C]

Okay, one last question. Kevin Warsh has suggested that you all talk too much. There's too much Fed communication. What do you think of that? And would you be willing to cut back on communication except when doing interviews with us?

[B]

Us? Yes, I this is what everybody's going to ask us. But you know, the thing that I think is really important is to ask ourselves why do we communicate? What are we accomplishing? Here's how I think of it for myself. We're trying to explain why we what our reaction function is and why the policy choices that we're making or thinking about are are really for the American people. What variables are we thinking about, et cetera. Where I and you know this because it often causes dissatisfaction. Where we're going to go next week, what my thinking is and today is much less relevant about the point estimates on the policy decision. It's what's much more important is how would I react to economic situations coming forward. So again, I look forward to, to having Kevin join our Kevin Borsch when he's confirmed, having him join the fomc, having him chair it and lead it. And I also look forward to the debates that you know, I know Kevin well enough to say that he's, he does mean what he says when he says he wants to have real debates, real discussions and I look forward to those.

[C]

Well, we look forward to you continuing to talk to us even if Kevin says you can't talk to anybody.

[B]

We'll see how that goes.

[C]

Mary Daly, the president of the San Francisco Fed. Thank you very much.

[A]

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