record high inflation continues to inflict pain on
people and businesses and products across the country
from Main Street to Wall Street. The hurt is felt
stocks on Wall Street have lost more than 20% of their
value so far this year. It's been one of the worst
years in recent memory. If 2022 ended yesterday this
year would rank as the seventh worst performing ye
for the stock market since 1928. Also, new data from
the Commerce Department shows the U.S. To me actually
shrank during the first half of the year, the economy
contracting by 2.2%. Leaving some to wonder if
inflation is pushing us toward a recession. Joining us
now to discuss the state of the economy is Mary Daly.
The president and ceo of the Federal Reserve Bank of
San Francisco Mary, thank you so much for coming on the
show again. We always enjoy having you want to talk
about this. Let's get right to it, inflation is still
very high right now. The Fed has come under criticism
for either not responding enough responding to
aggressively. It's been hit on both sides. So what do
you say to the critics about how you all are handling
inflation Well, the first thing is our number one
priority is to get inflation down american consume
businesses are suffering from the high inflation which
is eroding their lives and livelihoods. That is why
we've taken a very rapid pace of increases to bridle
the economy, get demand back in supply in line with
supply and give relief on that inflation front. And
we're starting to see the Benefits of those rate
increases. I'm here in Boise, Idaho, I'm seeing the
housing market cool and people are feeling a little bit
of relief which is frankly very welcomed. That may be
the case, but inflation is still up above that 8% mark,
not what we all want to see. I know you guys like to
have it in that 2-3% range so what more do you need to
see to have that happen Well, we need to see a lot more
relief on inflation. You're absolutely right. When I
say there's a little relief that's welcomed. That is
not full victory by any means and we really want
inflation to be back around 2% as you said and that's
going to take some time. But the rate increases that
we've taken and the ones we project taking addition
are the ingredient that will help bring inflation down.
And we're all just seeing some relief on on supply
chain starting to form of course, those things togethe
relief on demand demands a little bit slower and supply
is a little bit better that actually delivers the lowe
inflation that everybody wants. There are some
predictions though that say the rates could go as high
as four and a quarter percent. You guys have more
meetings this year. How much higher are you going to go
How many How many more times are interest rates gonna
be hiked Well we have two more meetings before the en
of the year. And each of those meetings has
considerable data that will come in before we actually
sit down and discuss and debate. So you know, I do
believe we will take additional rate hikes. I just
think that's the right thing to do to bring the economy
back in balance to give the relief on inflation. We
just talked about but exactly how high we will go by
the end of the year. That depends on the data. And I
think that's the thing when you get criticisms from
both sides, we're not moving fast enough, we're movin
too too fast. It really is about being data dependent.
That's the thing. I want all your listeners to know, we
don't have a preset course. We really look at the data
that's incoming. And we say what is the best thing to
do for the economy Because ultimately, if the econ
is in better more sustainable shape and inflation
lower, everyone benefits every consumer every business.
And with the Fed's actions there have been more and
more concern about pushing us into a recession that our
word, do you guys fear that at all, is it even a part
of your calculation whenever you make the decision to
raise rates Sure. That's a terrific question. And and I
would say that, you know, obviously there's a sense
that the economy is slowing and what I'm seeing though
is we're still adding over 300,000 jobs per month in
the US economy we only need 100,000 to just keep the
unemployment rate study. That's 200,000 more jobs than
we need to keep unemployment where it is. So that's not
an economy that's teetering on recession. That's an
economy that needs to slow to a sustainable pace. So
before we get ahead of ourselves and worry about
recession I think we should just get the economy
slowing in the way that we need to to give that all
important relief on inflation And here in Boise Idaho
which is you know a booming economy. I'm seeing tha
relief forming. It's moving from frenetic to something
that feels more sustainable and that feels more more
more practical for people more like they can live their
lives and they can't stop thinking about inflation a
they don't have to worry about catching up because they
can just go back to living the lives they want. I know
some of this talk about the Fed the interest rate hikes
can be filled with the kind of business lingo and
jargon. Could you just explain in the most basic terms
for people who may not be familiar with the financial
terms how a rise in interest rates affects things l
credit cards, home loans etcetera, things like that.
Absolutely. So the Federal reserve raises the interest
rate and what immediately happens is other interest
rates. The ones that matter for people, the mortgage
interest rate, the car loan rate, the credit card rate.
Those go up and when people face higher costs of
borrowing, they borrow less and they spend less and
then that filters through the economy and it starts to
see demand. The place that I think is just easy to see.
This is we raise interest rates, the fed mortgag
interest rates went up 6.7% printing right now and that
slows housing demand and when that slows housing demand,
house price appreciation slows. And then another really
important thing that so many americans face rental
price, inflation starts to slow and that is just
hitting the pocketbooks of americans right now. It's ty
and rising. That slowing will give much welcomed relief
that combined with gas and food, that's a big portion
of what americans spend their money on and that's what
we're looking for. That's how the interest rate policy
we have works so many dominoes that fall from that
decision. Alright, President Da sit tight, we have
to take a quick break. We'll have more. Right after
this. Welcome back. Let's get right back to our
interview with mary daly, President and ceo of the
Federal Reserve Bank of san Francisco mary. Thank you
so much for being so generous with your time this
morning. We really do appreciate it. Um researchers a
your bank recently did a study that the work from home
shift during the pandemic that we have recently seen
may account for more than half of overall home price
increases and could be a main driver of inflation So
explain that to us, how is working from home correlated
with higher inflation Sure. So what what happened is
that so many of us started working from home and w
we work from home we have two things that happen. We
want a bigger place to live. You don't want to live in
a small place because we've got a lot of family there
and you're all trying to work from home, go to school
from home and then you also can live farther away from
the location of the headquarters where you were wor
So a lot of people moved into these communities, y
know here in Boise Idaho really this happened a lot of
people from coastal communities moved to Boise and they
brought a lot of money with them and housing prices
rose quite a bit here priced out most of the first time
home buyers who had grown up in Boise or Idaho. And
that dynamic is happening not just here but across the
country and that has been a driver of home price
inflation, rental price inflation and overall inflation
Such just one ingredient to a much overall picture here.
The economy. Of course it can be very complicated to
unpack. There's the jobs, there's the unemployment rate
inflation never easy to understand. But right now it
kind of feels like we're in a recession on top of that.
The U.S. GDP fell for the second straight quarter. So
in your opinion, how healthy is the the economy right
now And are we slipping into a recession Are we already
in one Well, you know why I look at a whole host of
data and so if you look at GDP which frankly most
people don't think about every day, what they think
about it looks like, you know, while negative growth
But if you ask most individuals when I travel acros
have nine states in the in the United States, the whole
Western United States, I go to any of those states and
here's what I see busy airports filled up restaur
people going to shows and games and just being out. And
I see an economy that feels good, feels solid but the
number one concern everybody ha we all have it is
inflation inflation is just too high. And so there's a
sense of how things feel good in one way but I'm
falling behind every day every month because my wages
aren't keeping up with the prices and my business can't
sell things at the input costs. I have can't pass that
fully onto consumers. These are the things I feel. And
so what really has to happen, this is why the Feds
resolute and bringing inflation down. We have to get
inflation down if we can get that to happen with these
kinds of conditions, we'll go back to that sustainable
sense of normal that we all crave. It seems like you
guys are prioritizing bringing inflation down more so
than your fears of slipping into a recession. Is that a
fair assessment that your main priority right now is on
that high inflation It is our main priority. That's the
thing. That is the most out of balance. I mean we
mentioned it at the top of our discussion, inflation is
printing over, coming in over 8%. That is unsustainable.
And the important thing that I think many people, you
know, don't think about is that high inflation actually
makes us vulnerable to the economy tipping over into
recession or falling into a A bad situation. It just
makes the economy more fragile. So getting inflation
down is actually strengthen the economy, making a
future for the economy and our future pace of growth
much more, both sustainable and healthy. In the
meantime, inflation still, as I said, is above 8%. So
what is your message to impatient Americans out ther
who are struggling to pay the rent, other bills on how
they can save money right now What do you say to them
Well, we're seeing americans do what americans do
They're substituting their buying things in bigger
quantities and sharing them with their neighbors.
They're making modifications in their spending behavior
so that they can make ends meet. But the other thing I
want americans to know is that the Federal Reserve is
raw. We're united. We're focused on bringing those
numbers down. And so while they won't get to 2% by the
end of the year, they will start to come down and we're
seeing some relief, but we're going to keep working
until that relief occurs for everybody. So real quick.
Just 10 seconds you said not 2% by the end of the year.
When is that going to happen Well, I'm hoping we can
get there because of the supply chains and our policies.
We can get there in the end of 23 closer to 24 1920 24.
But there's a big difference between eight and two and
chipping away at that is gonna feel like relief for
people mary daly President and Ceo of the Federal
Reserve Bank of SAn Francisco. We always love havin
you on the show mary, thank you so much for your time.
Thank you