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SF Fed's Daly Tells Axios Biden Infra Plan Won't Change Fed Rate/ Infl View

FED

SF Fed Pres Daly tells Axios that she expects that Pres Biden's $2trn+ infrastructure package - if passed - wouldn't change either the Fed's rate or inflation outlook. This is largely because she expects the related investment to boost potential growth.

  • Axios quotes her as saying: "I put it in there as a boost overall on growth, should those [bills] pass but I don't put it in as a big pickup in inflation because I think of it as creating an additional supply effect — more workers coming into the labor force, better output, the roads and bridges and digital infrastructure improve...This is really good for our economy. It allows us to grow faster."
  • Daly - a 2021 voter - sits more toward the dovish end of the FOMC spectrum.
  • Now that the infra plan's been published, will be interesting to get more FOMC members' takes on its potential medium/long-term impact. Of course the bill has a way to go before being passed, but if the outcome is seen as growth positive/non-inflationary, it could give FOMC members more room to keep policy easy alongside stronger employment/GDP forecasts, without concerns that inflation/expectations will become troublesome.
  • Also interesting would be perceptions that r-star, the natural rate of interest, could be nudged higher based on the infra bill generating stronger potential growth (NY Fed's Williams, for one, has written on strong infra / R&D investment impacts on raising r-star).
  • Unclear whether Daly discussed the plan's higher taxes potentially offsetting growth benefits.

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