Chapter 1: What is the main topic discussed in this episode?
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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 Daly joins us now for more.
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Chapter 2: What is the Federal Reserve's current stance on inflation?
And they're already seeing parts of it. So when I see that, I'm like, okay, we need to think about that. What really will spur this as an ongoing thing is if they start to change their business processes. So that's what I'm looking at.
Chapter 3: How does Mary Daly assess the economic landscape of the 1970s vs. the 1990s?
Now, that means, but I guess a different way to say this, 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.
President Daley, how would you respond to the criticism that the 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?
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 the goods prices that we expect to be a one-time price level adjustment and not a consistent run-up in inflation.
And if you unpack the data, what you see is you don't 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.
President Denny, 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, it's 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?
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Chapter 4: What factors are influencing productivity in today's economy?
Yes. You look at prices. 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 says it's a demand shock, a negative demand shock, along with just a coincidental
uh 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 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.
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 what happened after the 1990s. How much do you weigh that? How much do you have to pay attention?
Well, you know, one of the things that you do, so financial market conditions are one input into our decision making, one of many inputs. You know, we have two goals, price stability, full employment. We're trying to think about what inputs affect 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 U.S. expand. And so we're not talking about a bunch of ideas with no backing.
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Chapter 5: How does inflation impact consumer behavior and business pricing strategies?
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