What really shapes our economic future

MARY DALY: Liberation Day, there was just so much uncertainty, consumers were uncertain, businesses were uncertain. But at this point, I think those things have settled, and the economy weathered that fairly well. The unemployment rate has gone up a little bit, but not that much. Inflation has gradually come down, except in the tariffed sectors. Recession indicators were quite high and rising earlier in the year. And now, they’re not really predicting a recession at all. So what is the new economy going to look like? The truth is no one knows, but we do know what the elements will be.

BOB SAFIAN: That’s Mary Daly, President of the Federal Reserve Bank of San Francisco. The Fed has been in the news a lot lately from President Trump’s crusade against Fed Governor, Lisa Cook, to the pressure on Fed Chair, Jerome Powell, to lower interest rates. Mary gives us an exclusive firsthand look into the daily decision making at the Fed and how the body’s narrow remit, as she says, can send powerful ripples across the economy. We talk about the reliability of government data, housing prices, how immigration policy is impacting the job market and more. Mary offers a perspective on business that we rarely get to see, with critical insights on where our economy is headed. So let’s get to it.

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I’m Bob Safian. I’m here with Mary Daly, President and CEO of the Federal Reserve Bank of San Francisco. Mary, thanks for joining us.

DALY: Delighted to be here, looking forward to it.

Copy LinkHow the Federal Reserve works

SAFIAN: Yeah. So you run one of the Fed’s 12 regional banks. Your district covers nine Western states, plus Guam, American Samoa, The Mariana Islands. Can you briefly describe the role of your office, and how it relates to the Fed overall? When we hear Fed Chair Jerome Powell announcing a change in interest rates, are you feeding into that? How does all this work?

DALY: In 1913, when the Fed was formed, there was a decision that we shouldn’t be Washington-centered. That having a presence in Washington with the Board of Governors was important, but having 12 regional reserve banks was equally important so that we could balance out the decisions about the economy across the country, not just in DC. So I lead one of the 12 reserve banks, and those reserve banks do feed into monetary policy. We go to each and every FOMC meeting. We are rotating on votes, but we’re always participating. We’re thinking about how our districts with the lived experience in the economy is and how that matters when we make monetary policy.

Monetary policy, the misnomer is it’s all about numbers and markets, but it’s actually about people and lived economy experiences throughout the nation. And so that’s the role of reserve banks, in addition to managing all the operational duties that our teams have, including making sure you have cash when you need it, that your bank can get it and distribute it, making sure the banking system is safe and sound.

SAFIAN: You’ve said there’s no politics in the Fed. You’re not funded by the federal government, so a shutdown doesn’t affect you, but everybody tries to influence you guys, policymakers, the White House, investors. How do you keep that politics and that pressure out of what you do?

DALY: The founding of the Federal Reserve 1913 had two elements to it that I think have been durable over time and led the way for central banking across the globe. First was that you had to have a regional voice and the second was that you had to be independent. Because monetary policy is made for the longer run and the decisions we make on where to put cash depots and how to distribute our supervision, that’s all got to be done no matter what administration is in place. So to be durable, especially on the monetary policy part, Congress said let’s make these individuals independent of political persuasion and really thinking about the goals we gave them, and in our case, it’s price stability and full employment, making sure inflation is at 2%, making sure that the economy is not producing lots of unemployment or running so hot, so un-sustainably that inflation should go up. So those are the goals we have.

You asked how do you maintain that? How do you not get influenced? Ultimately, who we work for is the American people. Of course, individuals have points of view and we have to consider those because otherwise we’d just be in an echo chamber. But there’s a difference in listening to understand and listening to be persuaded.

SAFIAN: And when the President tries to remove a Fed Governor, as President Trump has done with Lisa Cook, how distracting is that from the task at hand?

DALY: It’s really not distracting from the task at hand. Let me just speak about myself. We’re fiduciary stewards of public trust and public responsibilities, and so that’s where I have to attend. Now, I think about not just what’s right in front of me, but ensuring that the American people have a stable and healthy economy over the long term and that the independence of the Fed is preserved not just for the next two months or two weeks, but in fact over the time period, passing that baton to the next generation of leaders.

SAFIAN: There’s been so much disruption this year in 2025. Are there particular economic indicators that you are most focused on right now?

Copy LinkNavigating government data during the Trump administration

DALY: So I think about it as a three-legged stool. So the first component is the public data, the things we get from the government, the things that we get on a regular basis. They’re very, very important, but they’re only one part of our overall data collection. We also get data from the private sector. One of the more critical components of that three-legged stool, which is underappreciated in my opinion, is the time that the reserve bank Presidents in particular spend talking to people, to CEOs, small, medium and large businesses, to community members, civic leaders, unions and workers thinking about not just what were they doing last week, but what are they doing going forward.

So right now, I’m very focused on that third leg. And the reason is because when you get to a point where the economy is changing, you have to rely on people who are telling you not what they were doing last week, but what they are doing next week, the next month, the next quarter and ultimately, the next year. And we take that valuable information back to the FOMC meeting. It’s really a robust process and one that I think is critical at these moments.

SAFIAN: Let’s talk about concern about the economic data from the government being impacted by federal cuts and restructuring. Is that part of the challenge right now also?

DALY: Well, there’s a lot being talked about because the data that the government collects, we are the gold standard in the world for data collection and data consistency, so definitely we don’t want to chip into that. So far, we haven’t really seen big gaps in the data. It’s always the case that the data will be volatile from these published sources, the government sources during these turning points or pivot points as the economy slows or should the economy pick up steam, you’ll miss certain things and the revisions will be sizable over time because of those changes in the economy. It’s one of the reasons that we always, at turning points, rely on these other sources. 

So I think this time isn’t that different. The government shutdown, of course, means that we might not get certain series. We didn’t get the employment report, so we would definitely be relying more on the private sector data that’s collected on the labor market, but also what we hear from our contacts.

But ultimately, I don’t feel like we’re without the information we need to make good decisions, but it’s really about continuing to speak about how valuable these data are so we can ensure that they’re collected in the going forward.

SAFIAN: It sounds like in some of the concern about Trump firing the head of the BLS or the Bureau of Labor Statistics, you’re not necessarily seeing that as an issue with the credibility of the data that you’re getting?

DALY: No, because I know how those agencies work. Earnest people are out there collecting the information. They care deeply that they are delivering good information. It’s not just for the Federal Reserve and I think that’s something that is really important. It’s also benefiting businesses and policymakers writ large, because you need to know how the economy is fairing to know whether you want to invest or how to plan or how to think about providing the support that it needs. And so these data are important and the people who work on these data, whoever their head is, know that. It’s easy to see volatility and think we should distrust something, but I think if you look at history, volatility is common when the economy is changing and we shouldn’t get worried just because we see it.

Copy LinkExamining the early economic indicators for the nation

SAFIAN: Your region is very diverse, urban and rural, agriculture, oil drilling, from Google’s headquarters to cattle ranching, right?

DALY: Exactly.

SAFIAN: Given that breadth, how do you set your agenda? How do you decide where in the field you’re going to look?

DALY: The thing that really is catching my attention is where’s your economy and what’s changing nationally. So we are dealing with changes in tariffs, dealing in changes in immigration, deregulation, your tax relief or tax changes. One of the places I really focused on this year was Alaska. Alaska is a place where you’re going to get at the crux of so many things. They do import most of their things, so they have tariff issues they have to think about. They are also beneficiaries of the deregulation on drilling and other activities. Do you have a lot of population that comes and works with them from other countries? So I went to Alaska and I asked people, who do all kinds of things, the ports, drilling, construction, et cetera, what is the net-net, how does this net-out so that you feel positive or not positive about the changes that are going on?

What you see when you do that is this amazing sense of resiliency. There’s uncertainty in the beginning, but now that that has diminished, they’re really not stalled out. They’re continuing to make progress and moves and seeing that anything that changes, any administration that comes in, changes things, but they’re used to just picking up and going on. So that’s been very helpful and it’s a way to prioritize. I give that as an example. So I’ve been to the Intermountain States, Utah, Idaho, Nevada, Arizona this year because those states are also really at the margin of where these changes are taking place.

SAFIAN: I hadn’t really thought about Alaska as an edge case of sort of where the economy is moving. You’re looking for these edge cases in some ways?

DALY: I look for edge cases. That’s a great way to put it actually. I’m looking for the edge cases. Right now, Las Vegas is a great leading indicator. It’s the place where if consumers are going to start to pull back, they do it in Las Vegas because it’s discretionary, it’s fun. So when the economy is really, consumers are confident, they’re going to Las Vegas in large numbers. When they’re less confident, they go fewer times and they spend less when they’re there. So really thinking about those places gives you insight into where we’re headed.

SAFIAN: I saw that you said your district is very diverse, but in your work you’ve seen how similar people are, that everyone wants to be rationally inattentive.

DALY: It is true.

SAFIAN: What does that mean?

DALY: Okay, so I speak about that mostly with inflation. If the Fed is doing our job, everything’s going as we hope it would. People don’t even know we’re there. They don’t pay attention to us because they can be rationally inattentive. The labor market is healthy and inflation is low and stable. When inflation is high, we get a lot of attention and rightly so because it’s our job to bring that down, to put it back to 2%. What I really want for people is they wake up in the morning and they don’t think about prices and they go to bed at night and they don’t think about prices. They don’t sit on their online shopper waiting for the discounts to come, so they can grab the item because they can’t afford it otherwise. That’s what the high inflation period has taken from people, and it really is the Fed’s job and responsibility to bring inflation back down to that 2% goal so that people can be rationally inattentive about it.

SAFIAN: The concept of being rationally inattentive appeals to me, one less thing to worry about. I’m also taken with Mary’s identification of economic edge cases like Alaska and Las Vegas as a way to understand where a changing economy is moving. So how are other factors like immigration policy and AI impacting the economy of tomorrow? We’ll talk about that and more after the break. Stay with us.

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Before the break, Federal Reserve Bank of San Francisco CEO, Mary Daly shared how she and her Fed colleagues look for economic edge cases to understand our fast-changing economy. Now, Mary talks about how immigration policy, housing prices, and the AI boom are hitting the labor market and where the future economy is likely headed. Let’s dive back in.

Copy LinkWhere the economy is headed now

You referenced the way the economy is changing right now. Obviously, the economy is always changing to some extent, but it certainly feels like we’re at a certain kind of inflection point. I know you’ve rated the sentiment of your region as cautiously optimistic, which is a little incongruous with an economy that seems like it’s moving to something we’re not quite sure where it’s going to go. Can you address that disconnect and maybe explain how and where you see the economy moving?

DALY: Absolutely. So there is quite a bit of uncertainty still, not as high as earlier in the year. The uncertainty really spiked after April 2nd, after Liberation Day. There was just so much uncertainty people didn’t know if they were going to be able to buy their smartphone or if they should buy it right away or if they should wait. Consumers were uncertain. Businesses were uncertain about what’s this going to mean. But at this point, I think those things have settled, and the economy weathered that fairly well. The unemployment rate has gone up a little bit, but not that much. Inflation has gradually come down except in the tariffed sectors. 

So the only places where you see prices rising are in the ones directly affected by tariffs. And so people think of that increasingly as a one time price level adjustment and then they’ll be okay.

Another thing that I think is important is pick a basket of goods that you like to purchase. Put them in a cart at one of your favorite online retailers and then check what has happened to that basket of goods over time. And what you’re seeing is that while certain items have gone up, other ones are being deeply discounted, so people feel like they’re not losing the kind of ground they lost in the big inflation rise after the pandemic. So I think that gives people some confidence.

Recession indicators were quite high and rising earlier in the year and now they’re not really predicting it at all. Consumer sentiment has gone back up after falling, business sentiment has gone back up after falling. So I think that’s where I get the cautious optimism. I was at University of Utah a couple weeks ago and the students are optimistic, and I was really encouraged by that because that generation is like a bellwether. They see that if they learn these new skills, AI, et cetera, they can really make a dent in the economy.

So what is the new economy going to look like? The truth is no one knows, but we do know what the elements will be. Certainly, artificial intelligence is making its way. Is it going to be transformative? Is this going to be the new steam engine or electricity? I don’t know. But it is making a contribution to people’s ability to do things faster, better, cheaper and hopefully, will also make a contribution to us doing things that we never imagined were possible.

Copy LinkHow businesses are moving at a rapid pace

SAFIAN: A lot of the business leaders that I talk to in the environment we’re in now, they find themselves having to sort of readjust or reassess their plans at a pace or a frequency that is different than what they were used to. Do you have to operate at a different kind of pace than you used to?

DALY: Absolutely. I’ve been through this before, and so I think that’s what businesses that have been long tenured are also feeling like their pace now is very quick, of change. So we are in a place now where change is rapid and where companies are having to respond with great dynamism. The ones that are going to survive and thrive, it’s not just about surviving, it’s about thriving, are going to have to try things out and change course. 

One of the things I’ve noticed though, because I’m wondering, should I be worried about this or is this part of normal business or companies managing it, so what I’m seeing is that companies are managing it. They’re managing it by not getting too wedded to a five-year plan, but actually taking it in smaller doses.

How do you stay steady in the face of change? You anchor, you anchor to your core values, the mission, what you’re trying to do as a company or in our case, an institution like the Fed, so you anchor. What are we trying to accomplish over time that does not change? Then how does the world change the plans in which we accomplish that? So that’s the assessment period, and what I’m seeing now is many, many companies assessing. What would we do if we got into that market? What would happen if we came back, we drew back a little bit? So there’s constant scenario planning.

SAFIAN: Yes.

DALY:  And then assessing those scenarios in the risks and returns. How do we make moves that don’t cost us if they turn out to be wrong? Having a greater ability to reverse or be agile so that you can actually manage the change that is coming to you. One of the ways I say this is, you’ve got to stay center court, if you like racket sports, not pickleball, tennis. If you want to stay center court, you are always looking around at what can come next and you’re agilely able to adjust to that and I see companies doing that. So as they practice that, then they become cautiously optimistic. If you’re not yet practicing it, you’re just worried. But if you are doing that active practicing, you’re getting cautiously optimistic and then ultimately, you take the decisions. So you don’t put up a crane until you think you’re ready. But I think the assessment piece is long underrated. People often say, well, I assessed it last year, this is what I’m going to do and now I have to change my strategic plan.

But the really dynamic companies are doing this constantly. They’re constantly assessing before they move forward, constantly understanding are they going to adjust. And I think the Fed over time has learned that as well, just from the history of having to do it. I have five AI models, they’re growing every day, so I have them on my phone, my personal phone. And I practice them all the time, not because I want to be an AI technologist, although that does seem like a cool job, but because I think it’s a responsibility to know the technologies that are influencing the economy that I’m trying to serve. So that’s the way in which we have to manage our change and then pivot or decide as we go.

SAFIAN: It’s interesting when I talk to CEOs, many of them acknowledge that they’re moving faster and more agile than they ever were, but they’re also worried that even though they’re moving faster, they’re falling further behind some of the most agile and the biggest players. But it sounds a little bit like from your perspective that as a system that agility is making us all more resilient and better even if there’s some uncertainty among winners and losers in the players. Systemically, we’re stronger?

DALY: I think so. I think we are systemically stronger, and I also think it’s very hard to call winners and losers at such an early stage in the change. One of the things that determines over time who or what companies win or lose is really that ability to be in the game, just the ability to stay in there and make good decisions. I would say I see changes in adoption of AI that I have never seen. The adoption rate for smaller and medium-sized companies is far faster than I’ve ever seen. And now, we’re turning to, how do you make it productive? It’s not just, do you know what it is and do you have instances of it in your company’s portfolio of tools, but how does it really deliver productivity? And I think that’s where the companies are interrogating now. CEOs, they’re built to worry and it’s always uncomfortable when things change this rapidly, but it’s hardly ever dangerous over time. And it does, in the end, teach you about resiliency and making good decisions and then recognizing when you’ve made a bad one, taking some costs and moving forward.

Copy LinkHow the shifting immigration policy is impacting the economy

SAFIAN:  So I want to ask you about a couple of key economic topics, if I can. First, immigration. How does the shifting immigration policy and practices impact what you’re seeing in the economy and in your district?

DALY:  Sure. So immigration has really been an interesting phenomenon right now. So we have many, many fewer, I mean it’s just dramatic. We went from having really high immigration to now quite low immigration, and people are even leaving our country. So that left a big change in the labor force. We went from having a rapidly-growing labor force to not so much, and now we have just the domestic population growth, which is much slower. So as demand for workers has slowed, so has the supply of workers. And so it’s kept our labor market in relative balance. The question going forward is if we don’t have so many immigrants leaving, ’cause a lot of that’s behind us, not all of it, but a lot of that’s behind us, what happens to the unemployment right now if job growth still slows? Because now we don’t have that relief valve essentially of many workers leaving the country.

In terms of how it has influenced businesses, smaller businesses and medium-sized businesses that relied on an immigrant labor force, maybe in leisure and hospitality, are really finding technology solutions for this. If you go to a restaurant or a bar or an airport or a hotel, a lot of times you’ll be checking into a kiosk, you’ll be ordering online with your phone and a server will bring it. And that just cuts down the number of staff, so that labor demand goes down as labor supply is no longer available.

SAFIAN: I didn’t know whether you were going to say, because sometimes that kind of dramatic change in labor force increases labor costs because there’s more demand for that labor, and that increases inflation, but that’s not what we’re experiencing.

DALY: And it’s really because the economy was slowing at the same time. So you saw the demand for labor slowing and then the supply of labor is shrinking. And so we end up in balance, but it’s a peculiar kind of balance.

Copy LinkHousing affordability and the Fed’s limitations

SAFIAN:  Another topic I want to ask you about is housing. Housing prices keep going up. The median home price in California is creeping toward almost a million dollars. Is housing affordability something the Fed can address, should address? Is there economic impact around housing that you’re watching?

DALY:  So we definitely watch the economic impact because it affects economic activity. One of the most common complaints I hear from businesses is they don’t have enough workforce housing in their communities to expand at the rate they would like to. Their workers just have to live so far away that they can’t really come to work. And so that’s where you’re seeing the emergence of what I think of as public-private partnerships, where private businesses are saying to civic leaders and to community leaders we’ve got to solve workforce housing issues. 

But ultimately, to answer your original question about the Fed, we have one tool, the interest rate and two goals, price stability and full employment, and we have to make that for the nation, policy for the nation. So we have a very narrow remit, but it’s meant to set the conditions for other good decisions to be made by other people who have that pen.

So for instance, if we can get inflation fully back down to 2%, which is what we’re striving to do, then we can relax the policy rate, lower interest rates a little bit more, and you would see that component not restraining the housing market. As the interest rates have come down, mortgage interest rates have come down, you do see more activity in the housing space. Some of that lock up that people felt is being unlocked. But ultimately in the United States our problem isn’t simply interest rates in housing. In fact, I think the bigger problem is we have too little housing. After the global financial crisis, the scars were so deep among builders that they simply didn’t build as much housing. This is an issue that has to be resolved, but the Fed is going to have to leave that to our fiscal elected officials. It’s tough though. So the Fed, we watch it, but we can’t change it.

SAFIAN: I know you grew up in Ballwin, Missouri. You had kind of an unexpected path to leading a federal bank. How does that background impact your work or do you have to sort of put all that aside because, as you say, you have this narrow remit?

DALY:  I don’t make decisions, I think, differently because of it, but I do collect information differently because of it. So one of the things I realized early on, but only with reflection, I didn’t know this, I wasn’t sitting in Ballwin, Missouri with a GED thinking these things. What I was thinking then was what am I going to do with my life. How am I going to manage? How am I going to pay my bills? But with age and responsibility, I reflect on that and realize that there are so many people out in our economy who feel a little bit lost. They don’t have that rational inattention. They feel like they can’t get a hold on the economy. And then inflation and a poor labor market really rob people of the types of things that they would like to have, which are just the ability to have a career, to feed their family, to do things, to build in their communities.

And so it left me with this intense commitment. I feel like even though we have a narrow remit, we have a powerful one because if we can really do the job of managing inflation and protecting and sustaining a full employment labor market, well, then all the other things can occur. But if people have to worry about, will I find a job because the unemployment rate’s very high or will inflation just erode even the great earnings that I feel like I’m getting, well, then they can’t think of anything else. They’re so distracted with trying to figure out, how do I pay my bills and how do I feed my family? They don’t even think about a career. They just think about tomorrow. And I grew up thinking about only tomorrow. And so the freedom to think about not just tomorrow, but the next year and 15 years away, that is a freedom that people deserve, and that’s where the Federal Reserve with our narrow remit has the most impact.

SAFIAN:  And Mary, this has been great. Thank you so much for doing it.

DALY: It was great.

SAFIAN: I love how Mary focuses on thinking past tomorrow. On the one hand, it’s a luxury. Thinking past tomorrow is only feasible if our basic needs are met, if we have a job and inflation is stable, as she notes. But on the other hand, thinking past tomorrow is essential to create the conditions that help us thrive, especially in an economy at an inflection point when we don’t know exactly where things are going to net out with AI, with trade. We need to anchor on our core values and goals. So yes, as Mary stresses, we need to do more scenario planning, and yes, we need to grow our capacity for agility, but when it comes to making decisions, it’s about zeroing in on what’s most important and making what we can control a priority.

I’m Bob Safian. Thanks for listening.