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Mary Daly. Photo: David Paul Morris/Bloomberg via Getty Images

San Francisco Fed President Mary Daly does not expect President Joe Biden's proposed $2 trillion infrastructure package to alter the central bank's path on interest rate increases or change its outlook for inflation, she tells Axios in an exclusive interview.

Why it matters: Many have worried the combination of trillions in spending on coronavirus relief, the Fed's ultra-loose monetary policy, and Biden's big stimulus plans for infrastructure, education and manufacturing will set the table for out-of-control price increases.

What she's 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," Daly says.

  • "This is really good for our economy. It allows us to grow faster."

Where it stands: Even as markets have pushed inflation expectation gauges to the highest in nearly 13 years and consumers are reporting the highest inflation expectations since 2014, Daly, a voter on the Fed's rate-setting committee this year, says she sees no need for the Fed to rush to raise interest rates.

  • "What I need to see myself is ... a period of time where inflation is at 2% and expected to be above 2% for a period of time that gives me confidence that we will absolutely in this next expansion average 2% over time."

For example, Daly points to supply chain issues in the shipping industry that have sent prices spiking higher in recent months as unlikely to be sustainable.

  • "I called my contacts and I asked 'Do you expect these things to persist?' And they say, 'No, they’ll unwind as soon as the supply chain bottlenecks are removed.'"
  • In contrast, Daly calls out the potential for improvement in the labor market that she expects would lead to improved wage growth that pushes prices higher consistently.

Keep it 💯: Daly strongly disputed the notion that the Fed may not have the tools to rein in inflation should it begin to rise out of control.

  • "That’s a possibility but not one borne out by the evidence," she says.
  • "I think it is an incorrect interpretation to think that we’ve lost our power across the distribution of interest rates."

Go deeper

Updated Mar 31, 2021 - Politics & Policy

Biden unveils sweeping American Jobs Plan

Photo illustration: Aïda Amer/Axios. Photo: Mandel Ngan/AFP via Getty Images

President Biden will ask Congress Wednesday to spend $2 trillion on an infrastructure plan over eight years, and pay for it by increasing taxes on corporations for nearly twice as long.

Driving the news: The package, which he will unveil during a speech in Pittsburgh, seeks to fulfill a range of promises he made on the campaign trail to fix the country’s crumbling infrastructure, slow the growing climate crisis and reduce economic inequality.

1 hour ago - World

Pentagon: 8,500 troops on high alert for possible deployment to eastern Europe

Photo: Anna Moneymaker/Getty Images

Defense Secretary Lloyd Austin has placed 8,500 U.S. troops on "heightened preparedness to deploy" to eastern Europe in case NATO activates its rapid-response force over tensions with Russia, the Pentagon announced Monday.

Why it matters: No decisions have been made to actually deploy U.S. forces, but the heightened alert level will allow the military to rapidly shore up NATO's eastern flank in the event that Russia invades Ukraine. The Pentagon warned that Russia has shown "no signs of de-escalating," and continues to amass troops on Ukraine's borders.

Updated 2 hours ago - Economy & Business

S&P 500 on track for worst-ever start to year

Data: FactSet; Chart: Axios Visuals

Stocks suffered their steepest drop of the year early Monday, putting the S&P 500 on course for its worst-ever start to a year.

Driving the news: The benchmark S&P 500 dropped for its fifth straight day, with losses nearing 3% in early trading, momentarily putting it on track to fall into a "correction." Some of the steepest losses were recovered in early afternoon trading.