San Francisco Federal Reserve Bank President Mary Daly used a LinkedIn post on Friday to draw attention to what she described as a disconnect in perceptions about the U.S. economy. Daly said businesses are "cautiously optimistic" even as many workers express growing unease about future labor market conditions.
In her post, Daly pointed to a combination of factors underpinning firms' forward-looking mood: steady growth, solid consumer spending, job openings that are relatively easy to fill, and productivity improvements that have helped keep certain costs in check. These observations, she said, contribute to a cautiously favorable business environment.
By contrast, Daly wrote, household sentiment shows more pessimism. She cited recent sentiment surveys indicating that Americans expect fewer job opportunities ahead and anticipate rising unemployment rates. That expectation among workers stands in tension with the more optimistic signals coming from firms.
On labor market dynamics, Daly observed that the economy has been in "a relatively low-hiring, low-firing environment for some time." She warned that while that pattern may continue, workers are conscious of the possibility of rapid shifts, which could produce "a no-hiring, more-firing labor market."
Daly also referenced inflation, noting it is running above the Federal Open Market Committee's 2 percent target and that this reality "rightly feels precarious" for many Americans. She used those points to underscore the importance of the Federal Reserve's dual mandate.
On policy implications, Daly emphasized monitoring both price stability and employment. "Americans deserve both price stability and full employment, and we can't take either for granted," she wrote, framing the Fed's responsibilities as balancing those two objectives in light of divergent private- and household-level signals.
Key points
- Businesses report cautious optimism, supported by growth, consumer spending, easier-to-fill jobs, and productivity gains.
- Household surveys point to greater uncertainty - Americans expect fewer jobs and higher unemployment going forward.
- The Fed must weigh both inflation control and labor market health when setting policy.
Sectors potentially affected
- Consumer-facing sectors, where spending patterns influence firm outlooks.
- Labor-intensive industries, which are sensitive to hiring dynamics and worker sentiment.
Risks and uncertainties
- Changing labor market conditions - a shift toward lower hiring and higher firing would affect employment-sensitive sectors.
- Persistent inflation above the FOMC's 2 percent target, which maintains economic unease among households.
- The possibility that business optimism and household expectations could diverge further, complicating policy trade-offs for the Fed.