Fed’s Mary Daly Misses a Labor Component in Price Rises

It fell to me to ask the obligatory question about the strong dollar at this appearance of San Francisco Federal Reserve president Mary C. Daly at the Council on Foreign Relations today, and she gave the obligatory response that the currency’s forex value is not one of the Fed’s mandates. She elaborated a bit in the quotation in this Reuters account. {A previous version of this item said she is a Fed governor–she currently is not on its policy-making committee, as she was in 2021; Fed regional bank presidents rotate out of those voting slots.]

Of more substance, if not news value, was her discussion as a labor economist of the reasons the Fed, among other Washington policymakers, miscalculated the onset of persistent inflation coming out of the pandemic. She cited a couple of factors: an inability to foresee the sluggishness of supply forces, both in the U.S. and internationally, in pulling out of the Covid-19 disruption; and an underestimation of how strong demand would be, especially for goods, as Americans began to stir again. She made no mention of the role that fiscal subsidies–some of which continue under “emergency” edicts–played in discouraging labor-force participation. The drawdown of that labor force was something Daly nonetheless cited as a “worrisome” damper on future economic health–she even made a joking reference to a “quit to find myself” mentality among some who left jobs. Might the fact that so many bills were deferred or diminished have something to do with that?

Fed knows how to fight inflation, will seek to do so ‘gently’ -Daly

San Francisco Federal Reserve Bank President Mary Daly on Tuesday said the U.S. central bank has the tools and the knowledge to bring down high inflation, and will use them, even as it tries to find the “gentlest” way to do so.