Federal Reserve Bank of San Francisco

SF Fed’s Mary C. Daly on Economic Shocks, Inflation, and Monetary Policy

In a recent Hoover policy panel, San Francisco Fed President Mary C. Daly examined how policymakers assess economic shocks and decide whether to look through or react. She argued that the traditional split—identifying a shock as supply‑ or demand‑driven and judging its persistence—often fails, as illustrated by the pandemic’s “transitory” inflation that proved persistent. Daly recounted the Fed’s response to the Global Financial Crisis, when analysts built labor‑market heat maps and dashboards to distinguish cyclical from structural factors. By aggregating dozens of indicators, they revised the natural rate of unemployment down to roughly 5.6%, showing that workers could shift industries more readily than models suggested. Applying that lesson to inflation, Daly described a new inflation dashboard that breaks price growth into demand‑driven, supply‑driven, and momentum components, and tracks sector‑specific pressures such as tariffs and oil price spikes. Early red flags on the dashboard helped the Fed gain confidence that tariff‑driven price rises were likely temporary, while oil‑related pressures warranted closer monitoring. The overarching message is that models provide a baseline, but disciplined, data‑rich analysis—combined with real‑world business insights—offers a clearer view of shock persistence. This approach improves the Fed’s ability to anticipate inflation dynamics and adjust monetary policy before pressures become entrenched.