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Why keeping delta variant in check is so important to our economy

As the economy tries to regain ground lost during the pandemic, and the delta variant threatens its progress, the nation’s top economists are watching a number of measures of recovery -- from housing costs and ownership rates, to jobs, interest rates and inflation -- closely. Judy Woodruff talks to Mary Daly, president of the Federal Reserve Bank of San Francisco, about what she is seeing.

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  • Judy Woodruff:

    Let's pick up now on questions about the costs of housing, as well as larger concerns about jobs and economic growth.

    Mary Daly is the president of the Federal Reserve Bank of San Francisco. She is part of the Fed's Board of Governors that votes regularly on key decisions about interest rates, jobs, inflation, and the Fed's role in the economy.

    Mary Daly, welcome back to the "NewsHour." We appreciate your being here.

    Paul Solman's report just now, housing prices going through the roof, not just in Boise, but in many parts of the country, how concerned are you?

  • Mary Daly:

    Well, it's hard.

    It's hard on the people who can't get the housing. They have grown up in these communities that suddenly lots of people have flooded into with cash on hand to purchase those homes, and then they are displaced or they have to wait, they can't purchase homes. So that's hard.

    In terms of concern, I see it as a difference in supply and demand. It will resolve itself as more supply comes online. And in Boise, Idaho, for instance, you're already seeing that supply come online. Building is rampant there. If you tour that area, you see homes going up everywhere. So, over time, it resolves itself, but it's not there yet.

    And for the communities struggling with this, it's a hardship right now.

  • Judy Woodruff:

    And you are saying it is going to resolve itself.

    But there are some who are saying what we're seeing now is a housing bubble that could burst at any time, meaning a sudden drop in prices. We saw the Federal Reserve governor for St. Louis, James Bullard.

    And I'm going to quote from something he said this week. He said: "The biggest concern for me is in the mid-2000s we had a housing bubble. And what we learned from that experience is that if these prices go down precipitously — there, they went down 30 percent — that caused tremendous problems in the U.S. and the global economy."

    He said: "Housing is a very interest-sensitive sector, so we are feeding into an incipient housing bubble."

  • Mary Daly:

    So, let me tell you what I see when I'm out in these communities and when we study this. We look at the research of who's buying homes.

    One of the things that's very reassuring about the housing market right now is that the people who are buying those homes are very well prepared to pay for them. They have a lot of wealth. They're able to take the wealth and spending in the housing market. They're getting lower interest rates, but they're buying owner-occupied housing.

    If you look back into the housing bubble, the one that caused so much pain and suffering just a decade ago, it was really often people buying second homes, even third homes, speculating. And those things actually caused repercussions throughout. They were also highly leveraged.

    So American households who are buying homes are really in good shape in terms of balance sheet. So, right now, I see this as principally a supply and demand imbalance, and one that will resolve itself as we go forward.

  • Judy Woodruff:

    But would you acknowledge that the Fed has to a degree played into this by keeping interest rates so low?

  • Mary Daly:

    Well, lower interest rates, as you have said, allow people to purchase homes, importantly, also allow people to refinance homes, if — even if they're staying in the one they own, have more money to spend and help themselves through the pandemic, buy cars.

    But it also helps small businesses get low costs of capital, which help them keep their businesses open. And so our lower interest rates are supporting a whole myriad of activities through the economy. And that's actually helping the economy get through the pandemic and get back to full employment and price stability.

  • Judy Woodruff:

    Governor Daly, I want to ask you about this, because at the other end of the spectrum, as you know very well, there are renters who are having a hard time making those monthly payments.

    We have this new federal moratorium reinstated just yesterday by the Biden administration. Is this going to be enough to help them? And, if not, what more needs to be done?

  • Mary Daly:

    Well, I want to go back to something that we have said since the start of the pandemic. As goes COVID goes to the economy.

    And what we're seeing is that we're not fully beyond COVID. And people are still very disrupted from dealing with a global pandemic. They lost their jobs. They lost their livelihoods. They were on the brink of losing their homes. Housing insecurity is really critical.

    So, we really have to get through this fully. And getting vaccinated and getting through COVID will help this be enough. So, your point, is this enough, well, it really depends on COVID. If COVID can go fully behind us, then we can get fully back into economic activity. And then people can get jobs, pay their rents, landlords can pay their mortgages, and we are going back to an economy that we recognize and actually miss.

  • Judy Woodruff:

    I want to ask you about another aspect of the economy. And that, of course, is inflation.

    There's a key indicator that we know the Fed watches very closely. It jumped 3.5 percent last month from a year earlier. It's the fastest 12-month surge since 1991. It's the so-called personal consumption price index.

    Does this suggest that the Fed needs to somehow change course when it comes to inflation?

  • Mary Daly:

    Not to my mind.

    The inflation spikes that we're seeing, they really can be traced back to some key sectors that are getting their feet back under them trying to reopen. So, airline prices, travel and leisure prices in general are really contributing to the spikes that we see an inflation, used car prices, which are related not to just reopening, and people wanting cars, but the fact that semiconductor supply is constrained, because it was pushed down by COVID and hasn't fully come back up.

    So there's huge demand surging and supplies not keeping up. And then some of the prices are just catching up. Like, airline prices were very low in the depths of the pandemic. They return to normal, and that causes a big spike in inflation.

    So, if you put all this together all those details I just described, it really foreshadows and forecasts a temporary spike in inflation that lasts longer than we would have wanted, for sure. Temporary doesn't mean just a few days or a few months. It could last all the way into next year. But it won't stay there forever.

    And it's just a reflection of an economy that's reopening and the supply can't keep up with that reopening demand. But it will. And I think that's the reassuring thing I would like your listeners to hear, is that supply does respond, and supply will come back online.

    You saw that in the lumber prices. They went up, they peaked, and then they came back down.

  • Judy Woodruff:

    And in connection with that — in a way, I'm circling back to what we talked about earlier.

    You said just a couple of days or a couple of weeks ago strong economic recovery is going to allow the Fed, the Central Bank, to slow its asset purchases before the end of this year. Are you now prepared to say that that is definitely going to happen?

  • Mary Daly:

    I'm not prepared to say it's definitely going to happen, because, as you know, we're a data-dependent Fed. And the end of the year is far away at this point, in terms of counting the Delta variant and other things that could happen.

    So I'm looking for continued progress in the labor market, continued putting COVID behind us, rising vaccination rates, the things that are so fundamental to us saying that the economy has achieved that metric of substantial further progress.

    Right now, my modal outlook is that we will achieve that that metric at later this year or early next. But, again, data dependence, that's how we have gotten this far, and that's how we will make good policy going forward.

  • Judy Woodruff:

    But it's something that looks likely at this point?

  • Mary Daly:

    My modal outlook, the one that I think is the most likely to happen, is that we will do something on the asset front, asset purchase tapering, by the end of this year or early next.

  • Judy Woodruff:

    You mentioned employment.

    And I want to ask you about that. You wrote a blog post yesterday expressing your confidence that the number of Americans who right now are, if you want to call it, sitting on the sidelines, not getting back into the labor market yet, a lot of jobs are going unfilled right now in this country.

    Your argument is that that's only temporary. How can you be so confident?

  • Mary Daly:

    Well, my confidence is built on the fact that I have been through this a couple of times.

    I have been a labor economist since the mid-1990s, starting at the Fed. And in the mid-'90s, and especially in the last expansion, the same concerns were — we heard. People couldn't — employers couldn't find workers. They were worried that workers were never coming back, that the Great Recession that we spoke about earlier with the housing crisis, it simply made it impossible for workers to come back.

    They didn't have the skills. Maybe their preferences changed. Maybe people didn't want to work anymore.

    And none of that proved to be true. And so my confidence really comes back to a simple phrase: Americans want to work. They know it's what is important to their livelihood, to their communities, to their families. And giving them the opportunity to work by ensuring we don't presume that they don't want to and calling it a day, that's how I get the confidence, Judy, that you referred to.

  • Judy Woodruff:

    And yet, as you yourself said a moment ago, there is this Delta variant, the unknown course to come of this COVID pandemic.

    How much of a monkey wrench is that throwing into your — anybody's ability to be confident that this economy is going to be OK?

  • Mary Daly:

    Well, I said just a moment ago we have to be data-dependent.

    And one of the reasons I'm focused entirely on data dependence is, this Delta variant, it's already taken too many lives, forced too many hospitalizations, is starting to temper activity across the country. And, really, it's about getting vaccinated and getting this thing behind us. That is the part that's so important.

    But if we don't keep up with it, then it could definitely slow the rate of growth in our economy. Right now, I don't expect it to derail the recovery in the United States. But it's already very seriously interrupting the recoveries in the global economy.

    And that itself is a headwind on U.S. growth. So, it is a serious issue, one that I consider an important risk, and one that we need to look out for. But, importantly, most importantly, is get vaccinated, and we can get through this.

  • Judy Woodruff:

    Mary Daly, president of the Federal Reserve Bank of San Francisco, thank you very much.

  • Mary Daly:

    Thank you.

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