Date: 2025-08-21 Page is: DBtxt003.php txt00022660
INFLATION
MARY DALY AT THE SAN-FRANCISCO FED
Axios Macro 1 big thing: Mary Daly on the Fed's inflation war
MARY DALY AT THE SAN-FRANCISCO FED
Axios Macro 1 big thing: Mary Daly on the Fed's inflation war
Peter Burgess COMMENTARY
I am getting more and more concerned about modern economic policy analysis. I have had some concern for many decades, but it is becoming a bigger concern now that some important statistics are showing there is substantial inflation at the consumer level as measured by the CPI.
My concern is that nobody seems to know why there is this inflation.
I sometimes have to remind myself that I was interested in cost (and management) accounting before I was interested in financial accounting. As a very young CFO I used the analysis and understanding of cost accounting information to guide our management decision making which was all about getting more productivity with the minimum of expenditure. Back in the 1960s I became aware that places like the Harvard Business School and Wharton (University of Pennsylvania) were building a syllabus that had a focus on financial performance as the ultimate goal ... but were going way beyond where I had been going that was more about technical engineering and financial engineering.
By the 1980s, financialization was becoming the norm ... for better or worse.
US corporate profit improvement in the 1980s was driven by two main factors (1) low cost container shipping and (2) low cost Asian production and especially Chinese scale and speed.
US corporate productivity and profits have gone up substantially over the past four decades. Meanwhile wage rates have flatlined over this same period of time.
It is also worth noting that Canadian emissions are in large part caused by production for export to places like Europe and North Amercia. The massive emissions in the US does not included the emissions associated with the overseas production ot things that are consumed in North America ... yet per capital emissions in the USA are still the highest in the world !!!!!!!!!
There have been a series of massive shocks to the modern socio-enviro-economic system over the past three years, starting with the Covid 19 pandemic. Probably as much as anythng else, Trump want to be able to run in the 2020 Presidential Election on a platform that lauded a very strong economy ... record stock market levels and very low unemployment. The requirement that there needed to be a pandemic induced economic lock-down was the last thing that was in Trump's playbook. To his credit, it was done anyway ... and better yet, there was an impressive technical and financial moblization to develop and deploy Covid specific vaccines at a record speed.
It was also becoming increasingly clear that Trump was getting in the way of his own potential success. I should not have been surprised.
Early in the pandemic ... in March 2020, the Federal Reserve made an aggressive move to make the underlying financial situation well enough funded to be able to weather a substantial financial shock. They wanted to avoid anything like the luquidity crisis faced by several major financial institutions around 2008. I think that was a good move, but it does mean that the Fed will have to unwind from this position sooner rather than later.
And also during the first year of the pandemic, the Federal Government passed legislation to mobilize considerable financial support for most business and families in the country. The cost of this program was in excess of a !!!!!!!
Peter Burgess
Written by Neil Irwin and Courtenay Brown ·
Jul 01, 2022
It's a summer Friday before a long weekend. Here's hoping you are able to duck out early.
Today, we have some highlights from our new interview with San Francisco Fed president Mary Daly, including why it's hard to get a sandwich at 2pm in the Bay Area, and those California inflation relief checks. 🥪
Situational awareness: On the opposite coast, Susan M. Collins started work today as president of the Boston Fed.
We'll be back Tuesday, following the July 4 holiday. 🇺🇸
Today's newsletter, edited by Javier E. David, is 707 words, a 2½-minute read.
1 big thing: Mary Daly on the Fed's inflation war
Bringing inflation down is imperative to improve conditions for ordinary workers. That's a key theme we heard from our interview with San Francisco Fed president Mary Daly, conducted by video chat yesterday morning.
Why it matters: Daly has traditionally been one of the more dovish members of the Fed's policy committee. It makes her commitment to rate hikes and the war on inflation all the more notable.
- She views taming prices as integral to helping disadvantaged workers.
- After the July decision, 'then you figure out what else needs to be done so that we can get to 3.1% by the end of the year.'
- 'It is important to the long-run expansion of the economy and to the sustainable delivery of full employment. They're not trade-offs. They're a singular goal, and that's sustainable expansion that lives up to the potential of the U.S. economy.'
- 'If you're way off your price stability goal, ultimately you unravel the ability to achieve full employment.'
- 'The reason real wages are falling, despite a strong job market, is because inflation's too high and it's been high for too long,' Daly tells Axios.
- 'So if we restore price stability and the unemployment rate goes up slightly ... that's a better economy because that's an economy where you can still find it fairly easy to get a job.'
- 'This is not a recipe that's very comforting to workers, where they can get all the jobs they want, and they can even see their wage go up in nominal turns, but month after month, their real wages erode,' she explains. 'That's not a recipe for their happiness or their success.'
- 'The remedy is to bring [the] inflation rate down so that the incomes they're earning today will pay for the goods and services tomorrow. And so that's why these things knit together so importantly.'
- It 'was about 2:00, and I went to three businesses right in a row, and they all have the same sign: 'Closing at 1:00 due to staffing shortages.''
- 'There are staffing shortages because the labor market's so tight and people have opportunities and they ghost them … and that's not because they're bad people; that's because they've got lots of other opportunities and it's expensive to drive your car to work. So that's not a sustainable economy.'
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2. About those $1K checks to Californians
California residents, like the one shown here, pay more for gas than any other state. Photo: David Paul Morris/Bloomberg via Getty Images
We also asked Daly about a recent development in her home state: direct payments (dubbed 'inflation relief checks') coming to some 23 million Californians.
Why it matters: Governments are proposing different mechanisms to try to offset the pinch consumers feel from rising costs, particularly gas prices. But the end result could prove counterproductive, as the relief could boost both demand and prices.
'It's a societal decision that fiscal agents have to take, which is: do we let people run pretty close to the end of their budget? Or do we give them a little relief and tolerate a little higher demand?' Daly says.
Driving the news: California, with a record-breaking surplus of $100 billion, will send out up to $1,050 — with the poorest residents getting the biggest chunk of cash.
'Because it's pretty isolated to California and it's more targeted towards low- and moderate-income communities, I don't think of it affecting aggregate inflation, but it is a demand support,' Daly says.
'If you thought that inflation was going to erode purchasing power for these groups, now they have more money to fund themselves and their spending will be higher.'
The bottom line: Daly says the job of a Fed official is to look at how moves like this scale up to the aggregate — and adjust policy accordingly.
More highlights from our interview here.
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