Headline

Fed’s Daly: Any early signs that the labor market could falter could also trigger policy adjustment.
Fed’s Daly: We need to get inflation on a consistent trajectory to 2%, and need more evidence to feel confident enough to adjust the policy rate.
Fed’s Daly: It is premature to think that rate cuts are around the corner.
Fed’s Daly: It is far too early to declare victory on inflation.
Fed’s Daly: We don’t have inflation down to 2% yet - Fox Business Interview.
Fed’s Daly: It is important to look at any rise in the delinquency rates as an early sign of economic weakness.
Fed’s Daly: Household balance sheets are in good position now.

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Transcript

Edward Lawrence: Yeah, thanks, Charles. And she is a voting member this year in San Diego. I’m in Washington DC where there’s five inches of snow I should rethink my travel options here but thanks for doing this very appreciate it.

Mary Daly: Yeah, thank you for having me. Glad to do it.

Edward Lawrence: Let’s get right into it. The markets are saying that rate cuts will come as early as March we’re still seeing a strong jobs report. The core inflation is not coming down to the 2% range. It’s 3.9% for the latest CPI report, can you really forecast rate cuts and what meeting do you see those rate cuts starting in?

Mary Daly: So the first thing I want to say is the we don’t have inflation back down to 2%. Everyone knows that. That’s not price stability. We are fully committed to restoring price stability and doing it of course as gently as we can, but we have a lot of work left to do. We are not there yet and it’s far too early to declare victory. So while I think it’s appropriate for us to look forward and as when would policy adjustments be necessary, so we don’t put a stranglehold on the economy. It’s really premature to think that that’s around the corner.

Edward Lawrence: and when we say around the corner maybe not even July could be longer? Throughout 2024?

Mary Daly: I’m not going to put it… I think giving certainty or giving him in a sense that we have certainty when all we really have is questions, is actually not optimal policy. It could be a policy mistake. So what I’d like to do is in fact, explain what are the conditions under which we’d have to make adjustments so that my head is now and I think that’s appropriate. Okay. Let me talk about my benchmarks. I think that’s, that’s the best way to think through it right. Right now, inflation still came in at 3.9%. You know, we need to get that on a consistent trajectory. Heading back down to two. We need to see more evidence that it is heading back down to do consistently and sustainably for me to feel confident enough to start adjusting the policy rate. Right now we also have a labor market that is slowing there are signs of slowing, but it’s not faltering in any way. So I’m going to be looking for two things. Do I get consistent evidence that inflation is coming down? Or do I get any early signs that the labor market is starting to falter? Neither one of those right now is pushing me to think that an adjustment is necessary, but we definitely want to keep our eyes on those things. Ultimately, our job is simple and we’ve committed to do it. Bring inflation down to 2%, restore price stability as gently as we can.

Edward Lawrence: So if inflation remains higher, and there is a rate cut, then how do you hold do that and hold the appearance of independence from the Federal Reserve?

Mary Daly: So Congress gave us two very important jobs. Price stability, full employment, we’ve talked about those. To do those jobs, we have to look at the economy and make the adjustments we think are necessary to ensure that we can achieve both of those goals and balance them and so that’s all my focus is. Americans deserve us to get this right. And we’re going to do everything we can to make that so.

Edward Lawrence: And now I want to bring in Charles here. I know He’s itching to get a question and what do you what do you think what do you have for Mary Daly?

Charles Payne: You know, it’s amazing because the Wall Street and the Federal Reserve have been on opposite sides of this equation for a while but when Jay Powell at least acknowledged that there were going to be three rate cuts instead of two. Everyone took it okay. At least the Fed is going to be accommodative. They’re going to be on our side, and we’ll see what happens how that plays out. Interesting enough, even with today’s data and the signs that maybe yields are going back up. Wall Street does rally continues. I want to ask you about the banks though, because a headline that caught my attention us prepares rule, forcing banks to tap that discount window. Now for folks who aren’t really familiar with it. There was a report from the Federal Reserve in December 19 2017 titled stigma and the discount window. We know banks did not like to go to the discount window for a number of reasons. So the question is, why would the Federal Reserve force banks to go there and I’ll tell you the conspiracy theory, you can tell me if we’re wrong. The idea is that there’s a lot of banks out there with a lot of problems. And if they go to the discount window, we’re going to know who they are. Their stocks may falter and it may trigger some sort of a panic is there any other reason why you would have force a bank that doesn’t need to go to the discount window to go there?

Mary Daly: So let me first say that I don’t make regulatory policy. That’s the job of the vice chair of supervision. Michael Barr, the Board of Governors, the FDIC. And the OCC, so I don’t really want to comment at all on the policy rulemaking this being discussed there because not my responsibility, and it’s premature for me to even comment. I will say though, is that the discount rate window is regularly used by banks. It’s a an important aspect of of funding for banks overnight funding, many, many banks in the nation use it. And the stigma paper was really about recognizing the importance of the discount window. That is the important role it plays in providing liquidity overnight.

Charles Payne: We did have though an emergency funding facility that runs out and 36 business days and there’s some anxiety about that running out even as it’s being tapped. Yes, last week was the second largest amount of money tap from this facility. And people are wondering if there’s some sort of bridge being created, just in case I want to ask you about the role of shadow banking, and this is growing enormously and you know, the private credit side of our economy, how much control does the Fed have over that?

Mary Daly: So as you know, we are we have the, we’re regulating and supervising and really the Board of Governors, the banks that are within our system, and there are many aspects of the financial system that are outside of that, that ring fence. One of the roles that regional Fed presidents play in assistance with the regulators is we’re out in the field if you will, constantly talking to financial intermediaries of all types, private equity firms, etc and sourcing information about what they’re doing, where they’re investing, how they’re feeling about the economy and what they’re seeing. And so we have a handle on that information that we can then bring back and really ensure that we’re making not only good monetary policy decisions, but we’re also understanding the risks to financial stability.

Charles Payne: Yeah, it just feels like for a lot of folks, they hedge funds are become so powerful and more opaque at the same time. I want to ask you one thing that’s a little personal, but I was reading your bio, and it was something intriguing in there mentions your belief in 3d public service, that the need for public servants to be fully human, vulnerable, compassionate, optimistic. pragmatic, and I wanted to know, how does that influence your decision making on monetary policy?

Mary Daly: I rarely get asked a question like that, but I’m totally happy to answer that. So ultimately, right now is a really good example. We have high inflation that still needs to be brought down. And we have a labor market, full employment mandate, we also need to watch. And so that idea of being empathic and thoughtful and talking to the people in my district and understand what they need, really helps me understand that if we go too fast to adjust policy, we leave inflation too high, or we go too fast to adjust policy and or to raise interest rates more and we break the economy and people lose their jobs, then I’ve actually helped no one. And so I always have, you know, the economy is about people. And I keep those people in my mind. I’m always thinking about that, that one American, but that’s many, many millions of Americans who actually want two things. They want price stability, and full employment, and that’s what drives my job.

Edward Lawrence: We’ve got less than a minute to go by the way. Thank you very much for that answer. Edward has one more question. I’ve been itching to ask this very so we saw strong retail sales for December, and there’s record credit card debt. When does the consumer reach a breaking point? You got about 30 seconds?

Mary Daly: Okay, the American consumers actually incredibly resilient, they continue to spend it you see the survey results on sentiment and optimism and confidence that they’re really high. So right now, American households are in good positions in their balance sheet, but it is very important to watch what’s happening with delinquency rates and other things. Those are early warning signs that the economy is slowing and just a rebalancing. It’s one of the inputs I’ll take into policy decisions.