San Francisco Fed President Mary Daly Talks Labor & Economic Growth

**SPEAKER_1** (0:02)
Bloomberg Audio Studios, Podcasts, Radio, News.

**Caroline Hyde** (0:07)
The debate is rich around A.I.'s economic disruption. Is it growing more intense? Some see the technology that can unlock enormous gains, productivity and growth, but others that they want a disruption of unintended consequences. And we want to try and understand the sort of messy middle of all of this. With Mary Daly, president of Federal Reserve Bank of San Francisco, Mary Daly, extraordinary the data that you now have to lean upon.
Trying to understand what's factual, what's fiction, what's utopia, what's sensationalism. Who do you go to for your data on whether productivity is working?

**Mary Daly** (0:40)
I go to the businesses who are using the technology, because you can always encounter enthusiasts or doomsayers, but it's really the people in the middle, as you said, who are using that technology, thinking about it. And I've seen tremendous interest in it last year, and now I am seeing tremendous investment in it. Thinking about how do they train their workforces to be AI ready. How do they think about what AI can do, not just in the back office, but in the front of house of operations. And we're seeing this in small businesses, medium and large, in global companies, and more regional ones, and importantly, in everything from agriculture, to machining and building things, to services. And I think that's really the place. We haven't seen widespread productivity gains yet. The ROI is still to be developed, but I'm definitely seeing the enthusiasm, and it's picked up tremendously in the last year.

**<UNKNOWN>** (1:31)
We haven't seen the productivity gains yet. You're being very clear on that. As you remember, I asked you over and over again for an hour, please show me the productivity gains. But in the economic data, whichever set of data you want to look at, do you see an impact from AI, negative or positive?

**Mary Daly** (1:50)
It's really hard to take. We have had productivity growth that's been outside of the historical norm, and I think that's a positive for the US economy. Everyone wants to say that's AI.
What I think of it is as, sure, it's possible that businesses are looking for cost savings and they hire fewer workers than they do just as much because they're using an LLM assistant to help, but we just haven't heard from businesses that they're seeing transformative, ongoing productivity gains yet. And they want to always underscore yet. And so then I said, well, what's the timeframe? And they said, next year, year after, because what we know is it isn't just about getting a model and using it for things or an agent, it's about transforming your business processes so that you really take advantage of things we don't even think about today. What can be done differently that will transform the economy? So that you can definitely find a single business or sectors who are using it and seeing the gains. But we haven't seen that across the economy going forward, but I'm pretty bullish. I see the possibilities and I'm hearing more and more that people are seeing early rewards and really recognizing that next year is the litmus test.

**Caroline Hyde** (3:01)
Look, bullish is an interesting turn of phrase. Today, putting aside the slight dip in the market, the exuberance that we have seen in financial markets to want to back these companies, and we're about to get more public companies coming, more liquidity, more money. Is that, in and of itself, a financial stability issue? Are you worried about the markets riding so high?

**Mary Daly** (3:23)
You remember who's doing most of this investment, the Mag-7, who's really there. This is actually something they can do and fund, and their enthusiasm is real. They see what's possible. But I don't think that we should think, oh, there's financial stability concerns just because the market's gone up. It could go up or down as it has in the past, but a financial stability issue would mean it's spread to the banks, it's spread to consumers or businesses. Right now, I'm not seeing evidence of that. We keep our eye on it for absolute sure. But what I am seeing is that companies, other than the technology enthusiasts, companies outside of technology are using AI to think about how to do their business better in real ways. I mean, I was just meeting with some machine, make machines for a living. That's what they do. And they're thinking about how do I scan in 50 years of plans of these machines I've built for companies, and then use those plans and the model to generate innovative new ideas of things I can sell that will be faster, better, cheaper than things I've sold before. We toured a robotics company that builds things that help manufacturers do better in terms of shipping and distribution. These are real things that do have a capacity to change the economy. So I'm not, that's why, that's the underlying part of my bullish. It has less to do about the investments that tech companies are making and more about the investments that everyday regular companies that make things and provide services, the things they're doing.