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Economy

San Francisco Fed picks longtime insider Mary Daly as new chief

Mary Daly quit school at 16 amid family upheaval. With the help of a string of mentors she went from delivering doughnuts to completing groundbreaking research as a Ph.D. economist at the San Francisco Federal Reserve.

The Federal Reserve Bank of San Francisco picked long-time insider Mary Daly to be its next president, potentially bolstering the central bank's dovish wing while diversifying the institution's top ranks.

Ms. Daly is a career Fed employee who has worked at the San Francisco bank since 1996 and is currently its research director, a common stepping-stone to policymaking roles. Her appointment is effective Oct. 1, the bank said in a statement Friday, and her past speeches hint that as a member of the rate-setting Federal Open Market Committee, she could be sympathetic to arguments for a go-slow approach to raising interest rates.

A Ph.D. economist who studied at Syracuse University and focuses on labor economics, Ms. Daly will be the first openly gay woman to lead a regional Fed bank, bringing the current tally of female presidents to three of the 12 districts. She replaces John Williams, whose shift to run the New York Fed in June prompted complaints from critics seeking more diversity at the central bank who were dismayed when another white male got a top job.

The San Francisco Fed, whose district spans California and eight other western states, covers the largest region by area and by the size of its economy.

Ms. Daly has sounded optimistic on the U.S. state of affairs recently: in a July speech, she said that the economic outlook is bright with few signs of wage inflation leading to unwanted price gains. She also said that there's "little if any" labor slack, "but room to grow the labor force in the longer run."

As president of the San Francisco bank, Ms. Daly will vote one year out of every three on interest rates — including this year and in 2021 — and have a constant seat around the FOMC table as officials debate the future of monetary policy. That means her first vote will be at the committee's Nov. 7-8 gathering. For the meeting later this month, Kansas City Fed chief Esther George will continue to vote in San Francisco's place as the designated alternate.

While it's too early to tell how she will vote on policy, Ms. Daly could emerge as an influential dovish voice in the FOMC policy debate.

She is well-connected at the central bank: she was an adviser to Mr. Williams while he was head of the San Francisco bank and former Fed Chairwoman Janet Yellen quoted her work on wages.

Ms. Daly's public statements suggest that she won't be overly worried about inflation rising past the Fed's 2% target. In her July speech, she highlighted that policy normalization is a balancing act between avoiding high inflation and fully engaging the workforce. She then pointed out that wage growth is ratcheting up "only slowly" and that the correlation between wage growth and inflation has broken down since 1985.

Ms. Daly's remarks weigh in on the largest question currently facing the Fed: how to set policy at a time when unemployment is historically low at 3.9% but inflation is stable around its goal. Most members of the committee advocate continued gradual rate increases to choke off potential excesses, but the question will become a harder one next year, when the Fed nears the so-called "neutral" level of interest rates that neither speeds up or slows down the economy.

At that point, officials will have to decide whether it makes sense to push policy into restrictive territory, slowing growth and potentially spurring higher unemployment, to avoid too-high inflation.

Ms. Daly's comments are similar to those made by Minneapolis Fed President Neel Kashkari: he often points out that workers are coming in from the sidelines and inflation remains contained. Against that backdrop, he has been championing a slower approach to rate increases.

The U.S. central bank is under pressure to appoint more people from diverse backgrounds to its mostly white and male leadership ranks. The San Francisco Fed said it contacted 283 prospective candidates during its search to find a new president. A third of this prospective pool were women and a third were from a minority background.

Ms. Daly becomes the second openly gay regional Fed president after Atlanta's Raphael Bostic.

She's followed a decidedly unconventional career path. Ms. Daly dropped out of high school at 16 after her parents' divorce. She drove a doughnut delivery truck to make ends meet and worked at a deli as well as the lingerie department of a local big-box store.

"My aspirations at that time were to get a better department at Target," she said in a 2015 interview. Instead, an adult friend and mentor convinced her to get her high school equivalency diploma, then persuaded her to take a semester of classes at the University of Missouri at St. Louis, and later to attend the school's Kansas City campus full-time. She became interested in economics, and followed that curiosity to a master's degree at the University of Illinois at Urbana-Champaign and then through a Syracuse doctoral program and a Northwestern University post-doctoral fellowship.

At the Fed, Ms. Daly has pushed for greater diversity — from gender and racial to socioeconomic. She's a former head of the San Francisco Fed's diversity and inclusion council, and she's made a point of recruiting a wide range of candidates: the bank has moved its economic research-assistant gender balance from 80-20 to 50-50 under her watch, for instance. In May, she gave a speech on what she calls "the diversity crisis facing economics."

"If we're going to encourage people to study and build careers in the field that we all love, we need to go beyond building the pipeline and fundamentally change the culture," she said.