Transcript: San Francisco Fed CEO Mary Daly on "Face the Nation," February 13, 2022

The following is a transcript of an interview with Mary Daly, the president and CEO of the Federal Reserve Bank of San Francisco, that aired Sunday, February 13, 2022, on "Face the Nation."

MARGARET BRENNAN: Inflation went up again in January, and there is growing pressure on the Federal Reserve to increase interest rates in order to cool down the economy.  Mary Daly is president and CEO of the San Francisco Federal Reserve Bank. Good morning.

FEDERAL RESERVE BANK OF SAN FRANCISCO PRESIDENT MARY DALY: Good morning. 

MARGARET BRENNAN: You know, we say consumer prices are at the highest level in 40 years. I mean, if you look at certain items like car prices, they're up more than 40 percent compared to where they were last year. Energy is up 27 percent. Bacon up 18 percent. I mean, you've said inflation is going to get worse before it gets better. What do consumers need to be bracing for and what needs to be done to get this under control?

DALY: So first, it is very true that inflation is too high and is really hitting the pocketbooks of average Americans across a wide range of categories. The Federal Reserve is actively focused on this. As you know, we've talked about changing our policy stance, raising rates as early as March, which would certainly be something I would support it barring any surprises. And that's really meant to take some of the accommodation out of the economy and help inflation come back down to a place where people don't have to worry about the price of bacon or the price of used cars. But as you know that we're not the only part of this puzzle. We also have to get supply chains repaired and we have to get back out of our homes after COVID and start talking about service consumption, not just goods consumption. 

MARGARET BRENNAN: You said you do not favor a half a percent increase in interest rates in March. What do you favor?

DALY: So, I look at the data and I see that it is obvious that we need to pull some of the accommodation out of the economy. But history tells us with Fed policy that abrupt and aggressive action can actually have a destabilizing effect on the very growth and price stability we're trying to achieve. So, what I would favor is moving in March and then watching, measuring, being very careful about what we see ahead of us and then taking the next interest rate increase when it seems the best place to do that. And that could be in the next meeting, or it could be a meeting away. But either way, the most important thing is to be measured at our pace and importantly, data dependent. 

MARGARET BRENNAN: Measured in your pace. The financial markets are anticipating six to seven rate hikes in the year ahead. Is that the kind of tempo you foresee?

DALY: Well, I think it's too early to call. Really, you want. I mean, you talk about it. We had the – we have Ukraine right now, geopolitical risk. We are just coming out of our homes after Omicron. We hope that the virus will stay at bay, but we have to watch. We have another print before the March meeting on both the employment, the jobs report and inflation. All of those things are very important because before we make any pronouncements about exactly what we'd be doing on this year, I think what every American wants to know and deserves to hear is that we're on this and we're going to take those data in and get the accommodation right sized for the economy.

MARGARET BRENNAN: So, I mean, one of your colleagues at the Kansas City Fed has said current monetary policy is out of sync with the economy. The Fed is still injecting some emergency support measures here that, you know, because of the pandemic. Can you continue to do this when inflation is at seven and a half percent? Is this just about rate hikes to something or need to happen?

DALY: That's a terrific question, and you're right, we are continuing to taper asset purchases, but those will be complete by the early March. And markets understand that we're just doing that to ensure that we have a predictable decline in our purchases, so we don't dislocate financial markets. If you look at financial markets, they've already priced in the removal of that part of our accommodation, that injection as you referred to it. And they've also priced in rate increases over the coming year. So, I think markets and households in all of my contacts in the business community that I speak to you regularly, they understand that the Fed is moving on the policy path and adjusting it so that we get it right sized for the economy we have.

MARGARET BRENNAN: You mentioned geopolitical risk. The Federal Reserve chair has mentioned the crisis in Eastern Europe as a potential risk. How should people at home understand that? I mean, the White House is vowing to wage financial war on Russia here. They're cautioning U.S. businesses to be prepared about potential blowback from cyber-attacks. How do you foresee this playing out?

DALY: Well, any time, as you know, that we have geopolitical risk, it creates uncertainty, and Americans are already facing quite a bit of uncertainty. uncertainty about when COVID is ever going to leave our shores. Uncertainty about how the economy is going. So, this is just another factor and uncertainty we know affects consumer sentiment and ultimately affects consumer demand. So, what I think businesses – I know businesses in my district are thinking about is cautious optimism. They're bullish on our U.S. economy. They're bullish on coming out of the pandemic strong. But they're also very aware that we're not out of concerns yet, and we have many things in our future that we have to balance.

MARGARET BRENNAN: So, is that an argument against taking emergency action before March? Is that a prediction that energy prices, you know, how do you see the risk that we're facing right now?

DALY: So, I see risks on both sides, if we act to aggressively, then we could actually add to Americans uncertainty now they have to worry about whether the Fed is being too aggressive and if we act too slowly, then of course we we have accommodation that's too much for the economy. So that's why this balanced approach I we might look at it. I see March as an appropriate time to raise the interest rate, and then we have to take in all of the information that you've mentioned and make the right decision at the right time for the economy.

MARGARET BRENNAN: Mary Daly, thank you very much for your analysis. Thank you. We'll be right back.