Keynote Remarks by Mary C. Daly

Okay. Well, thank you everyone here. It is just wonderful to be in St. George. It's a place that I've been many times. I actually flew in to the airport that was once here on a Cessna plane right when I started in 1996. In 1997, I flew in on that plane and I decided from then on to drive from Vegas. And when they asked me this time, do you want to fly? I'm like, no. That experience scarred me. And now I realize that Dixie Technical College is here and I can actually fly into St. George without shooting up into the air and then shooting back down on a six-seater plane. So, but I did want to have some street credit with you all and say I did come when it was still this airport. So, thank you though very much for having me. I look forward to a very lively conversation. But I first wanted to start by talking about us, the Federal Reserve. What do we do? As Abby mentioned, we're excited to be here and to talk with all of you about how you're experiencing the economy, the challenges you have, the opportunities you see. And we do that regularly, but I think it's extremely important right now when there are just a lot of questions about the Federal Reserve as a system, as an entity, and going forward. There are questions about Fed independence, the structure of the Federal Reserve system, and the accountability of Fed policy makers like myself to elected officials and to the American people. But frankly, what most people want to know is can they trust the Federal Reserve? Can they trust the Federal Reserve to put them before us? And can they trust us to make the best policy decisions that serve all Americans? So today I will try to address these issues and describe how the structure of the Federal Reserve designed by Congress over a hundred years ago had these very concerns in mind. The same concerns that we hear in the news today. And Congress realized then what we know today. Trust begins with representation and accountability. And that's a key reason I'm here today in St. George. So let me begin by just talking about the structure of the Federal Reserve. And I'll start with representation. Now if you've been to Washington DC or New York City, you know that the country looks very different than that. Many places, St. George, where I grew up, they all look different than those cities. Indeed, the United States, if you've traveled across it, is a vast array of people, economies, experiences, and sensibilities. And Congress saw this. They observed it and they also learned it firsthand. Previous attempts to create a central bank that would serve the entire United States had failed in large part because they were centered in DC and New York prioritizing Wall Street over Main Street. The final attempt at a central bank remedied this. In 1913, the Federal Reserve was created reflecting national and regional interests and public and private sector interest all together in one entity. And these elements are evident in the Federal Reserve's structure and footprint. And I think just useful to see a map of this as you can see in this figure.

Others who are just like me covering vast parts of the United States. We have not only our head offices, the San Francisco Fed's head offices in San Francisco, but we have local offices. You have a branch here in Utah up in Salt Lake City and that's where Abby is the regional executive. This is true across there. I also put the gold stars. That's where we have in San Francisco Fed other people living in communities. We call them engagement officers. They're in the field living in the communities that we serve. And together all these branches, operations, and offices represent the United States. And that was the spirit of the idea of regionalism that Congress put together and a key component of how the Federal Reserve was formed. But the designers didn't stop there. They also recognized that to be effective, truly effective, the central bank had to be independent. Now, one way that independence shows through is in how monetary policy makers are selected. In DC, the board of governors are nominated by the president of the United States and confirmed by the Senate. They serve long and staggered and varied terms. They're not overlapping terms or they're overlapping but not coincident terms to insulate the board from undue influence for any particular given administration. Reserve bank presidents like myself were chosen in a different way. We were chosen by our bank's board of directors, a private sector group that oversees the operations of the Federal Reserve banks. So that was honoring the commitment to regionalism and private sector governance that Congress also thought was important. So you think of this as a matrix governance structure where the leaders are chosen partly by elected officials but also by private sector. They come together and there's this matrix operation of governance. Finally, to ensure accountability, which is again a critical component of trust, Congress set the Federal Reserve's missions and goals itself. It said here's what you're going to do. Here are your responsibilities. It's up to you how to execute those, but we're going to review your performance. And that's something Congress regularly does. Reviews the performance of the Federal Reserve and asks the questions: is the system, the entire system, meeting the goals that Congress gave us? At reserve banks, additional governance is imposed by the private sector board of directors which oversees, as Chip Childs is our board chair, oversees and advises on operations along with bank leadership like myself. We are accountable to the board of governors. So this again is a matrix system of governance that ensures not only that you have independence but that you also have accountability. Although the system has evolved over time, we don't look exactly like we did in 1913. Nothing really does, but the principles that formed the foundation of the Federal Reserve remain: regionalism, independence, and accountability. So that's how the Federal Reserve was formed. But the next question people ask is what do you do? What is the day-to-day look like for me and all the teams who work for me and other reserve bank presidents? So let me start by saying to understand what we do, you have to go back to why Congress felt we needed a central bank in the first place. Why did they create a central bank? It was really simple. Two things: to quell financial panics and bank failures. We had these private banks all over the country that were making little financial crises and people would show up at their banks and they couldn't get their money out. So that's problematic. So Congress saw that. And then also to ensure that we had a common US currency that could be accepted at any place you went to in the United States. Remember in 1913 people were very much scattered but they were mobile. They were moving around. That's how Utah came to be, right? People moved around. But if you had dollars from Kentucky, they weren't dollars. If you had a private currency from one state, you couldn't find that private currency accepted in another state. So that's another reason the Federal Reserve was formed. So if you think about those priorities, the solutions are reflected in the Federal Reserve's core responsibilities. Managing the payment system for the US, regulating and supervising banks, and conducting monetary policy. So, I'll just do a little bit on each of those. And I'll start with payments. Might be a fun fact to know one day. The Federal Reserve processes around $5 trillion in payments each day. Not each year, each day. And runs what we call the rails of the payment services system. I'm going to name them all because if you're a banker, you've seen them all. And if you're not, you've seen one or more of them. So we operate cash, checks, ACH, instant payments and wire transfers. The operations of those things, the underpinnings of how you actually operate them are largely done in the reserve banks in the 12 reserve banks and their branches and operational hubs. Our goals are always the same: to ensure efficiency, effectiveness, and resiliency. Right? We want to be efficient. We're stewards of taxpayer dollars, but we also want to be effective. You should get the best in class and we want to be resilient. There shouldn't be a time you show up to get cash or cash your check or use a service that you don't have access to it. Now, cash is something that most people don't know a lot about but use all the time. And a little known fact is that the Federal Reserve manages cash distribution for the nation. When people come to our bank or the Salt Lake City branch, they're most surprised by the fact that we do a lot of work with cash. We're making sure it's packaged, clean, counted, fit for circulation, etc. And that's being done across the United States by reserve banks. It's a very large scale logistical operation, and we need to be near where our customers are in order for that to be successful. I think this is something businesses know. If you're not near your customers, we certainly learned it in the pandemic. If the things you're trying to deliver aren't near your customers, you can have challenges. So, we have cash operations across the United States. Each Federal Reserve district operates those cash facilities, and you have one, as I said, up here in Salt Lake City that covers the regions that Abby mentioned in her opening remarks. So another large component of our work is bank regulation and supervision. And here the rules are very specific. The Federal Reserve Board in Washington DC and the vice chair for supervision currently Mickey Bowman hold the primary responsibility for this work. They manage the regulatory agenda, the supervisory agenda, how the supervision teams work in the communities. And that's largely a feature that has evolved to ensure that going back to homogeneity that banks in Kentucky are supervised as banks in Utah. That said, many of the examination teams, the people going out and meeting with banks are actually located in regional reserve banks in their other locations. And that's to leverage the local knowledge about the economic conditions to better serve the banks in those communities. Because you can imagine that a community bank in Kentucky might not be the same as a community bank in Utah because the economies are very different and local knowledge really makes a difference. So the rest of our work focuses on monetary policy. And here I can't underscore enough the importance of a diversity of views to support better outcomes. Really the worst thing that can happen in monetary policy is that all the policy makers have identical viewpoints and are served only by the same set of people. Because how policy makes mistakes is if no one disagrees. If everyone agrees, right? If we all think the same thing. We are best when we are debating, challenging ourselves, etc. So in practice this means that each reserve bank and the board of governors, but I'm really focused on the reserve banks today, each reserve bank has its own research team. These are not large teams as a share of our total employment but they're important teams. They help us avoid group think and they ensure that the system is debating and challenging what I think of as institutional norms and perspectives. Again, if everybody has the same models and perspectives, then we are much more likely to make a policy error. So this diversity of thought, this kind of experience of challenging each other is critical to doing our work well. Reserve banks though also as you can imagine have areas of specialization and expertise where they are working in and living in communities where they can really learn more than say we can in other places. So I'll give you a few examples but all of the reserve banks have something of this order. So these centers of expertise they serve the entire system. So for example New York Fed focuses in on financial markets. We benefit in San Francisco Fed from their learning on financial markets. Energy studies is a focus of the Dallas Fed because they're sitting there in Texas. And if I want to know what's going on with oil drilling and how producers will respond, I look at my Dallas Fed colleagues first and foremost as we collect information. And then in San Francisco, we focus a lot on emerging technologies. You might imagine we sit in the hub of many of the technological developments, AI being the latest one, but there have been, you know, a history of this. And so when a new technology is there, we're focused on that and really helping all of our colleagues learn from what we're seeing on the ground. It would be a misnomer though to think that research economists, people with PhDs in economics studying data and history and trends are the only people that help us make monetary policy. It's not true. One of the most important aspects of monetary policy are each of you and all the communities that we serve. And to be able to get those individuals the information that all of you and all the communities across the nation have, we have to have regional engagement officers and teams. Abby is a great example of that. She starts in cash, knows our business, but then really has devoted her time and energy now to going out and meeting people in the jurisdiction she manages to ensure that we're getting the best information. Our boards of directors are assisting us with that as well. Chip is a great example. So, this has been one of the key priorities of my presidency. I started in 1996. One of the first things I did as a young economist, that's my training, I'm an economist by training, was I went everywhere in the district and I would go, St. George was one of the first places that they sent me and I would learn about how communities and economies, importantly economies, look different depending on where you were and it really helped shape some of the research I have done over my career and importantly my understanding as a policy maker. So, it's important to be in the field and meet people. So, I've made a priority in my presidency to make sure that we didn't just have a few of us. We had many more of us. And so, we've put more teams in the field living and working in the communities that we serve so that we can ensure that we're getting the best possible information to make better monetary policy decisions. So whether we're hosting roundtables, conducting surveys or doing events like the one we are doing today, we are learning how the economy works in practice, not just in theory. And you know, if you think about how monetary policy is made and how policy makers ground themselves in the work that we need to do, it's really taking the research, the data, the history, the models and marrying that with what we're learning about what businesses, communities, and households are actually doing. And we can talk more about that in the fireside chat, but it really is that piece that makes the full picture of how an economy works become clear and what ensures that we're making the best possible judgments we can in a moment in time. So that's the Federal Reserve in a quick order and I hope you see that the work that we do actually reflects the founding principles that Congress laid out. So we want to be regionally focused. We want to be independent. Our thinking has to be independent and challenged and we have to be accountable. And this is a model that has stood the test of time. We're 113 years old at this point. But just because you've lived a long time doesn't mean you don't evolve as you go. So I think the next natural question and the last one I'll talk about here is what does the future of the Federal Reserve look like? Well, as a longtime public servant, I've spent my whole career in public service. I know that public institutions are pillars of democracy. You all rely on them even when you don't think about them. And so it's our job to remain strong and evolve, ready to meet new challenges and allow for new possibilities. The Federal Reserve is really no exception to what we demand from all of our public institutions. And in my 30-year career at the Fed, it's hard to say that, but it's true. So, I have seen and led countless kinds of change. We do not look the same as we did 30 years ago when I started. We are constantly modernizing though and improving our practices, processes and operations. Each of these efforts always come back to the same motivation: to be more efficient, to be more effective, and to be more resilient and ultimately to do why anyone who works at the Fed at all is meant to do: to serve the American people to the very best of our abilities and then get up the next day and try harder and do better. So, I'll leave you with this. Our work is never done evolving, right? If anyone asks you if the Federal Reserve is stuck in time, I hope that you will tell them no because we really have a commitment to constantly evolve. We, you know, I think of it this way and I won't attribute this to my other colleagues, but I know their spirit is the same. I think we should run ourselves as efficiently and effectively and resiliently as a private sector business does because ultimately we have shareholders too. They're every single person who lives in the United States and depends on us for services and we have to be good fiduciary stewards of public funds, but even more importantly, good fiduciary stewards of public trust. So our work is never done, but it will always be grounded on the principles that Congress established: to be regional in our work so that the coverage of the United States is complete, independent in our thinking, and accountable to everyone we serve. So thank you, and I look forward to our discussion.

Okay, now the hard start.

It gets tough now.

Yeah, that's the number one question I get. I got stopped on the airplane and asked that question. What's the outlook for the economy? So, let me start there. You know, one of the things that has been remarkable about the US economy, I would say remarkable, is how resilient it's been to a series of things that nobody expected to happen. Let's start all the way back with the pandemic. I mean, we came out of that pandemic and roared back in terms of demand. Supply wasn't quite there, so that we ended up with higher inflation and more disruptions than you would want. But it's really a remarkable thing. The same thing held last year when the economy starts off strong at the beginning of the year and then there's Liberation Day and tariffs and many commentators were extraordinarily worried that this was going to tip the US economy over but it did not. And now we have volatility from the war and the oil prices and things and so far though what we've seen is consumers are still spending, businesses are still investing, and sentiment hasn't completely fallen. There's a concern that maybe this will push inflation up. That's our job. We'll focus on that. And there's a concern that maybe the labor market isn't as solid. But we're not seeing that. We're seeing it kind of settle at a good place. So from my vantage point today, I see the underlying fundamentals of the economy as really in a good place. The question is what's going to happen with the war? How long will prices of oil and gas stay elevated? And what will the knock-on effects be in terms of other goods and services. It's really too early to make any statements about that because we don't know how long the conflict will last. But importantly, we do know that the underlying fundamentals of the economy remain solid and those are things that are important to how we see inflation progressing over time and how we see growth and the labor market progressing.

Yeah, that's a great question. So one of the things that is really important in this work is that you don't move around as much as the news does or the markets do or even the outlook does. And one of the reasons that we are better at that is because we have all the data and the fundamentals and our models, of course, and that helps. But we also talk to businesses. So here's something that is an example is worth a thousand words. So let me give you an example. So last year, right after Liberation Day, Chip, you hosted me at Brigham Young. We went to Brigham Young and I'm in Provo. We do a roundtable in Salt Lake first that Chip organized for us and I ask everyone, 'How are you feeling about tariffs?' These are businesses that are going to have a tariff impact because they're doing construction, manufacturing, etc. And they say, 'Well, you know, it's increasing cost. We will find out how much in a little bit. We're going to work on how do we get more cost effective so we don't have to pass prices along to consumers in their totality. We're going to think, our outlook isn't bad.' And we're driving from Salt Lake City to Provo and there's cranes everywhere. And importantly, the cranes are running up and down. They're not just stopped. People didn't stop. And that really was in contrast to what maybe some economic models would say. If you remember back then last year, there were many economic models and commentators saying this will break the US economy, but I wasn't seeing it in Salt Lake City or Provo. And I wasn't seeing it importantly across the district. I saw the cranes. People were still putting up cranes and they're still running cranes. Here's something I know about cranes. You don't build them and run them if you think the outlook is bad. You just stop and you wait for it to get better. But they were still going. And so that's an example of how we smooth through it. You know, uncertainty, no one likes uncertainty and no one likes volatility. But the only way it will affect the economy is if businesses, households, workers stop doing stuff because they're so uncertain. And what I saw then was that people weren't stopping. They were just more nervous. And so if you know, that makes people uncomfortable and it can eventually absolutely affect demand or investment, but you have to ask that question. You can't just assume it affects it. So that's how we do it. We go back and we say here's what our models say, what's actually happening in practice. And so my inflation outlook last year wasn't as high as many other commentators. And I wasn't as worried about the impacts on growth because I was seeing some of this. And then it turned out that the data I was getting from our contacts was a little bit better than the data that I was getting or the analysis I was getting from the models who hadn't seen a tariff incident like that since back in the earlier part of the century.

Yes.

Well, thank you. Well, I appreciate that. See, I love coming to Utah and I love...

You know, one of the most... there's really a few things I'll highlight here. So, when I started, it was interesting. You could go your whole career working at the San Francisco Fed and never visit another Federal Reserve Bank, right? These were really independent structures that didn't really interact with each other. I mean, we did interact of course, but they weren't joining their functions and forces in order to do our best work. So, over time, that just doesn't work, right? You don't want check processing. Checks are a good example. We had check processing in every single location, but the San Francisco Fed check processing ran differently than the Atlanta Fed check processing or the Dallas Fed check processing. But honestly, check processing is check processing. We should work it the same way. And so we standardized. You don't put it all in one place because you have to be near your customers, but you standardize how you do it. And so that's we've worked hard to standardize things that you can standardize to create efficiency and effectiveness, but always being mindful of resiliency. So that's an example where reserve banks now work together quite considerably more and it's saved us resources, it's saved us time and energy. Importantly, it's allowed us to invest the captured resources into other functions. And so another thing that's really happened is we've been leaning into regional engagement. So if you look at any reserve bank now, much more focused on regional engagement than they were. It's been a priority of my presidency as I said. So here's an example. The person who sat in Abby's role prior to Abby was the first person we had as a full-time regional executive. Before that would be about 10% of your job and the rest of your job would be managing cash or facilities or other operations. And so this idea that we really, to be regional, you have to dedicate resources to regional engagement, you have to be out in the field, that has evolved over time and I think made us much stronger. And then the amount of technology that's in our business. One of our biggest groups of people are working on the underpinnings of the payment system and that underpinnings of the payment system is mostly electronic now, right? We have cash that's very operational and checks very operational, but the other part is mostly technology and using things and being at the forefront of how to not develop AI or an emerging technology, but how to use it safely. So, we practice long before we use it largely because remember I said we want to be efficient, but we also have to be effective and resilient and we have to manage the trust aspect. You don't want us using technologies we haven't practiced and really been resilient with. Same as you don't want Chip doing that either. So that's how we've evolved and the place looks very, very different than when I started and it's really been for the better. I do think that as public servants and fiduciary stewards, we have to constantly work to be joining our forces, being better while we stay grounded and committed to being independent and regionally focused so that we can bring that information to the forefront in monetary policy and in all the things that we do.

Sure. Absolutely. Because we can't be, you know, monetary policy acts with a lag so we have to be forward looking. If we're looking backwards we're behind, so that's the important part of this. So one of the things that we're all talking about right now is AI. So back in early 2023 at the San Francisco Fed we started something we call the Emerging Tech Economic Research Network and it was just a network of trying to get better looking at research, looking at what CEOs are doing, talking to technologists, asking these questions. And so we've hosted so many roundtables with businesses by industry, agriculture, manufacturing, services, travel, finance, asking them how are you using AI? And what was really remarkable is in 2023 they were trying to figure out how to keep their employees from using it in a way they didn't blow. So they wanted to get ahead of their employees. They wanted to make sure they were keeping up. And so then we go back in 2024 and 2025 and every year you see them using it more. And so we were able to understand before the productivity growth began that there were elements of how AI was affecting productivity growth being built in businesses. They might not be reaping all of the benefits, but they're using it. And this was really important. There's a lot of conversation about will AI take jobs? We have talked to CEOs and what they tell us is we can't find workforce. That was a hot job market back then. We can't find it. We're using AI to augment jobs, to make people more productive, better at their work, and that's very important for understanding the trends. You know, I go all the way back to when I started in '96. One of the things I did early on in my career was for Chairman Greenspan back then was work on did we see productivity growth from computerization and internet. And that same pattern is happening now. And so it's an example of when you have these roundtables and they're very focused and you can do them across the entire district. You can actually use those as leading indicators of where the economy is going. And that's important because where we have historically made policy errors and will likely do again at some point is that you don't know what's going to happen. You're focused on what has happened and fighting the last battle is never going to help you fight the next one.