San Francisco Fed President visits Boise

BOISE, Idaho — Gas, milk, eggs, diapers. Prices of almost everything are going up these days due to inflation.

Then what should be done?

One of the country’s financial leaders stopped in Boise this week to discuss the economy and policy.

On Thursday, San Francisco Federal Reserve Bank President and CEO Mary C. Daly delivered a keynote address at Boise State University. Daly’s speech was called “the singularity of dual missions.” It discusses high inflation and the Fed’s dual mandate.

As part of the Fed’s 12th District, Daly oversees nine western states, including Idaho.

KTVB spoke with Daly before her speech.

“My job, and the job of all the teams that I work with, is that we need to go out and talk to people because ultimately, the policies we make are made for everyone who lives in our communities,” Daly said. “It’s very difficult to make policy if we don’t know how people feel, what they’re struggling with and what they want. Everywhere I go, I hear voices like this: People want jobs, they want low-income currency swell.”

In the 1970s, Congress mandated how the Fed should operate. Its goal is that the Fed should strive to maximize employment and keep prices stable. These two points combine to create a “dual task”.

To keep prices stable, the Fed has set an inflation target of 2%. Inflation has been above this standard for more than a year.

In response to rising inflation, the Federal Reserve has raised its benchmark interest rate for three consecutive sessions.

“The Fed is very determined on reducing inflation. It’s eroding people’s lives and livelihoods, and we understand that,” Daly said. “That’s why we’ve taken a pretty aggressive rate hike route, because rate hikes are what we need to do to get the economy back to a slower pace so that supply and demand get back into balance, and when people bring their paychecks home, they know it Every month counts.”

Daly expects rate hikes to continue.

“I do think we’ll see more rate hikes in the future. Really, we’ve predicted that in our filings and communications,” Daly said. “We need to do this because inflation is still well above our target. It’s keeping people from living month by month and it’s not a sustainable equation for the economy or individuals.”

With consumer prices rising much faster than hourly wages, especially the prices of necessities, “wage erosion”, Daly said.

The pandemic, the war in Ukraine and labor shortages have also dented domestic supply.

This means that ordinary workers are losing their status, especially those on low and middle incomes.

Inflationary pressures also affect mortgage rates.

“It’s ironic that in Boise, it’s the poster child for a growing city,” Daly said. “Coastal dwellers are moving in, home prices are rising, first-time buyers who grew up in Boise or Idaho are being bid by cash buyers. With rising interest rates and a slowing economy, that has cooled. A little bit, but we need Do more to restore balance.”

The Fed’s goal is to achieve price stability by raising interest rates while avoiding a “severe recession.” Just like the recession the US saw in the early 1980s, inflation lasted for more than a decade. A decade of high inflation has seeped into the psyche of the U.S. economy, Daly said.

That’s not the case with the economy today, Daly said, and inflation expectations and psychology, especially for the 5-year horizon, have been “well anchored” around the 2 percent inflation target.

“The ultimate goal is to provide a sustainable economy where people who want to buy a first or second home can do so without fear of being completely squeezed out of the market,” Daly said.

You can watch Daly’s speech on the Federal Reserve Bank of San Francisco’s website.

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