Mary Daly, Speech/Interview: The Singularity of the Dual Mandate, at Boise State University

Speech Segment

“Of course, inflation has been too high for too long, coming in above target for more than a year. But inflation expectations, especially at the longer end, have remained stable and well anchored around the Fed’s 2-percent inflation goal. This means that, so far, inflation psychology has not been lost and the public continues to believe the Fed has the tools and the resolve to restore price stability.”

“Resolute to our goals, the Fed has raised the benchmark interest rate rapidly this year, and projects additional increases will be needed.21 These are necessary and appropriate adjustments, taken to put the economy back on a solid footing.”

“We are already starting to see the effects—housing markets are cooling, the labor market is easing, and projections of future growth are softening. Of course, the full impact of our policies will unfold over time. So, we will need to remain attentive to the data, and recognize the signs that enough has been done or more is needed. History tells us that the costs of errors are high. Too little could allow inflation expectations to drift, requiring even more difficult policy actions in the future. And too much could end in overtightening and an unnecessary and painful downturn. Successful policy will require vigorous analysis, extreme data dependence, and a resolute commitment to delivering on our mandate.”

Interview Segment

“We started the course of interest rate increases in March of 22. Now, the thing that has made a huge difference in how quickly we’ve been able to adjust interest rates is that in March of 22, before we started raising the rate and before the summary of economic projections came out, mortgage interest rates were around 3%.”

“Why did that happen so quickly? It’s because we have another tool that we’ve used I think very effectively, and that is forward guidance. We have told Americans, and that is households, businesses, market participants, we have told people what we expect to do and the pace we expect to do it at. And I don’t know if you remembered, but your policy said expeditiously, we’re going to move the interest rate up, and so we’ve done that. And that’s helped bridle back the economy much more effectively and speedily than we would’ve done in previous periods where we didn’t have the forward guidance dual, and we were moving up more gradually.”

Balance Sheet: “We are in a period where we’ve had to use both our asset purchases and our funds rate. The funds rate is a very nimble tool. We can say we’re raising, it moves, we do it, it’s quick. It can go from zero to a tight path really quickly. The balance sheet is like a tanker ship, so think of the funds rate like a speedboat, the balance sheet, our balance sheet and our purchases. It’s like a tanker ship.”