2min chapter

Let's Appreciate cover image

Interview with Mary Daly, President and CEO of San Francisco Federal Reserve

Let's Appreciate

CHAPTER

The Fed's Job Is to Bring Inflation Back to 2%

The Fed has two goals: full employment price stability and inflation. Prices are rising for a whole bunch of reasons, including demand outstripping supply. The job of the Fed is to bring inflation back down to 2% using the tools we have.

00:00
Speaker 2
And of course, certain aspect, you're like, well, they kind of have to raise prices in order to pay these workers and get this ball rolling again. But I know that the Fed is sort of in between this top-down look at the economy, like how far the economy is operating above capacity, the bottoms, uplook prices in wages. But how do you think about that trade-off between higher costs for consumers from companies raising prices like this? And companies maintaining profit margins. We have only one tool, the interest rate, and then we
Speaker 1
have two goals, full employment price stability. And so what we're really doing is we're asking, how can we get those two things to go together at the same time? So prices are rising for a whole bunch of reasons. Supply chains, demand is outstrips supply because demand is strong, stronger than it normally is at this point in the economy. And then people don't necessarily want to do the jobs that they once wanted to do. So labor supply is short. And firms are trying to manage this. We have less global competition, less global interaction that we did prior to the pandemic. You've heard about reshoring, near-shoring. All of these things are happening at the same time. And all of that's contributing to profit margins or revenues or sales or prices. And so unpacking that is something you can usually do historically, but it's very hard to do it in real time. And in real time, we can all agree on this thing. People are rising too fast, faster than our goal, but faster than people can really keep up. And so the job of the Fed, whatever the cause of that high inflation is, is to bring inflation back down to 2% using the tools we have and do so as gently as we can so that we don't leave the labor market worse off for no reason at all. So we're really constantly, the things on the top of my mind, and this is up and down the generational spectrum across all my communities that I serve, is how do I deliver the easiest path for the economy
Speaker 2
that puts inflation back on track and keeps the labor market as strong as it possibly can be?

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