The question is not if they'll cut interest rates. The question is by how much. The answer to your question, John, is a quarter percentage point cut as expected, but Fed officials also see two more cuts this year in October and December.

It's Wednesday, September 17th. The Federal Open Market Committee has just wrapped up their most recent meeting in Washington DC. And after two days of analyzing and debating and forecasting, the committee voted to cut interest rates by 25 basis points.

I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. While the unemployment rate remains low, it has edged up. Job gains have slowed and

Yeah. It's the first time the Fed has cut in over a year. move coming after months of debate. And on the one hand, the labor market is slowing, but on the other hand, we're still trying to figure out what the impact of the tariffs is on prices and consumer spending is still going strong,

right? You could make a convincing case for deeper cuts, but you could also make a case for even raising benchmark rates at this point. And we don't tend to get a lot of these types of Fed meetings where the outcome is, you know, so debatable. So, we have to ask, how did the central bank actually make the decision to cut? To do that, let's back up six weeks to the beginning of August and head north. In fact, we are going 3,000 m north.

I added to my collection of flies for fly fishing yesterday. Oh, I I am slightly obsessed with fishing lures. I don't even fish. I I don't know why. I just I like to fish. That's Mary Dailyaly, president of the Federal Reserve Bank of San Francisco. So, here's why I get these flies. I go to places all over that have fly fishing, and then I buy a fly that's specific to their area to remind you. It's sort of uh geeky, but it reminds me that everybody fishes, but that you have to have a local knowledge to fish. Well,

yeah. You have to have like the fly that's in season for that particular location. And it kind of is why you go to the places to visit to learn more about the economy. You sort of have to you can understand it but you don't know it until you have the locality. So you don't do it well.

Daily oversees the 12th district of the Fed. It's the largest of the districts and includes the nine most western US states plus the most northern the last frontier, the great land, the sourdough state. I am talking about Alaska. Obviously,

in early August, Mary Daly visited Anchorage, the largest city and biggest port in Alaska. It was actually her third visit to the state this year. And she's on a mission of sorts. An expedition? Sure. She's on a northern expedition to try to find answers to the questions that everyone, all Fed officials, everyone else are trying to constantly puzzle out right now. What is going on with the US economy? Where is it headed? I've heard that everywhere we've gone that the city's under so much pressure and it's hard to What is your diagnosis about how this happened?

So, what was she seeing and how did it actually inform the Fed's decision to cut rates a month later? On this special edition of the OddLotss podcast, we are going to follow along as Daily tours her district, speaking to local business leaders like a factory that makes parts for the oil industry and the airport and the port itself to try to get a closer look at the giant logistics hub that is the city of Anchorage.

You know, every town in the world, I think, probably likes to describe its residents as quote scrappy unquote. But this really is like the first place I've been where I think that might actually be true. People in Alaska really do seem scrappy. They have to be to get along up here. Uh we really are on the edge of this vast wilderness. In fact, one thing we learned is that people up here love to compare the size of their state to how many Texases it would fit in, which to be fair, Texans love to do that stuff as well. Yeah. Um, the answer is two and a half. By the way, Alaska is the size of two and a half Texases. Okay.

So, everyone knows Alaska is big, but until you visit, it's hard to really appreciate just how big. The only way to get from Anchorage, which is the largest city, to Juno, which is the capital, is a 2hour plane ride. And if you want to haul supplies from a place like Fairbanks, which is in the interior, to the oil fields on the North Slope, that is a 10-hour drive on what is mostly a dirt road with one gas station on the way.

It's really isolated. Uh there's not even a railroad that takes you to the lower 48 or even to Canada. And there are mountains that basically cut off huge sections of the state from each other. But as we learned during our visit, Alaska is still dealing with all the same issues that the rest of the US faces. So things like inflation, unemployment, tariffs, housing shortages, logistical snarls.

That's why Mary is here. I mean, to try to get a handle on the broader US economy by looking at a place that at least right now is sort of ground zero for a lot of these trends is to collect information. So we collect information not only on the wide array of data that are available and then we have history and models. We have all of those things and then we have conversations.

Today Mary is the guest of honor at the Anchorage Economic Development Corporation's annual gathering. The Denina Convention Center downtown is overflowing with more than 1500 local business owners, politicians, civic leaders. They're here to mingle, network, talk shop, and hear Mary's thoughts on where she thinks the economy stands.

as well as counting the cranes as a future-looking variable is so important. So, I just want to thank everybody who's ever answered the beige book, who's ever met with us. If you like the beige book, we'll send you another one. It used to be beige, by the way.

So, this is the factf finding portion of the expedition because yes, Mary is giving a speech about what she's seeing in the economy, but she's also learning from the local businesses who are listening to her. And what I've been hearing is that the uncertainty is the word of the day. I guess it was on the bingo card. And uncertainty makes it harder for firms and households to know what they're doing next, which makes it harder for us as policy makers, Federal Reserve policy makers, to know exactly how the economy will evolve.

Mary isn't a voting member of the committee this year, but as a reserve bank president, she still participates in all the FOMC meetings where she offers her own assessments and opinions based on what she's seeing in the economy of the 12th district right now. And so her views still do help shape the committee's decision

in all the states in my district on a regular basis as are my teams. And the reason for that is so that we can understand firsthand what you are in particularly thinking about, what you see as your opportunities, what you see as your challenges, but also how do you see the economy today? You know, there's an interesting statistic we just heard that people feel decently pretty good about their own situation, but pessimistic about the economy. Well, we we need to understand why. What are you seeing as you look out? Businesses are making decisions today about what they're going to do at the end of the year. We need to know what those are. We need to know what how households are feeling. Are they feeling strapped? Are they feeling like they have enough disposable income?

And the data alone, looking at the published data, not you know, all the micro data, you could look at a hundred series and you would never have the complete picture. I'm sure we've all heard the phrase data dependent and the Fed leans heavily on the volumes and volumes of economic statistics that get released every month when making its decisions. But sometimes you can augment that data with things you observe on the ground.

Right? So just a few days before the Alaska trip, we got a jobs report that heavily revised down the employment numbers from the earlier months. It was a big surprise, huge moment for the markets, but it didn't really surprise Mary.

And what was interesting about the jobs report on Friday is it better matched in the direction of change, not in the magnitude. It better match what I've been hearing. And so a disciplining device for data that you don't know if they're really accurate, is what you hear from people because people do not tell you, I feel really, really comfortable getting a job only to find out that the job market report is bad. What they will tell you is, "Boy, it looks really worrisome out there." And then you get a jobs report that doesn't look like the rapid job growth.

That was the thing that was out of whack. The rapid job growth from the month before is what I said, "Well, really, that's not what I'm hearing. What's the gap?" And we spent a lot of time digging in and unpacking that. But then when the jobs market report got revised, I was like, "Okay, that makes more sense." Even

But of course, jobs aren't the only thing the Fed cares about. Its mandate is low unemployment and stable inflation. And these things seem to be operating at cross currents right now. Inflation has been above the Fed's 2% target for a while. And the concern is that with tariffs coming in from the Trump administration, prices are just going to go up further.

So to understand the risk here, we're following Mary to the offices of Northern Solutions. It's an Alaskan company which makes components and parts for the oil industry which is obviously big business in the state. Yeah. All the pipes and casings and spools and valves and things like that. And as you can imagine, steel is a pretty key input for a lot of these products. Since June, there's been a whopping 50% tariff on steel and aluminum coming from abroad.

So if we compare 21 to today, it's cheaper. I see. If we compare today to 23 24, yeah, it's small. And companies like Northern Solutions are trying to figure out just how to navigate all these new trade restrictions. It's not as easy as just say switching to a US supplier.

But if you do that and you can't get the continuity, well then that's a cost to you that not being back there. So it's a it's really helpful for us to think about when we try to think about the effects of tariffs or the effects of changes on any uh administration on your industry. Absolutely. I mean the the tariffs so the tariffs balanced it. So I can go to a US mill. I can go to a foreign mill and I'm going to pay the same price now with that tariff. But it's the industry that mill's geared to and the lead time of that steel that's the problem. Yeah.

And honestly, we we have a lot of small steel mills here in this country. A lot of small ones. They're very very specific to a certain industry. In other words, all steel isn't equal mills. So, there's mills all around the world. Steel mills all around the world. I can't use them all because of that, because of their MTRS. Not country of origin, just how well they do it.

Okay. So we have a lot of steel that comes into the US tubing that that comes brought in as green tube that we heat treated in the US. So that MTR is generated from a US uh heat treat facility and now it's 51% American and then you go all the stuff on it. I see. So when we we talk about metals that I can use, they're all over the place, but I can't use them all.

This is actually a really good example of the kind of information that makes Mary's visit so important. It's the kind of thing that you can't really learn from an economic data release. I'm going to use that. One of the things that I I just to show you how tell you how we use things I've learned is that if you think about how likely are we to shift all of our production from the United States or how likely is a global market on steel to be able to re if we put it all back today. I mean, you've taught me two things already that not everybody is geared to your industry and you have to have a specific, you know, heat strategy in order to even use the materials and they have to be a certain quality. So, it just means that you don't have the open marketplace that I think many people would think you have. So, they would just look at the number of manufacturers and they'd say, "Oh, look, you could do all of this." But you can't. There's barriers there. There are barriers.

Very helpful. You know, there's another big Alaskan business that's grappling with tariffs, and that is the port. Next stop, the Port of Alaska. Not many people have a demand for those ships anymore. So they'll decommission them as they Yeah. Although I I'll say in Natson in particular. So they have three ships that they rotate between and u they have the port of Alaska used to be called the port of Anchorage by the way. Very cool. It's a deep water port. The tides here are crazy. Here's uh Jim Jagger, the port's acting director, explaining what they're having to deal with.

So, Port of Alaska has a variety of issues that we're not unique, except that we're unique in the combination of issues we have. So, what are our challenges? For instance, we have um a pretty fast current. We have a 30-ft tide flux. Uh so, between low tide and high tide, 30 foot. Then our maximum tide flux between the lowest tide of the season and the highest tide is 40 ft. I heard it is the second biggest tide flux in the world. Yeah, it's actually depending on it. It's it's probably fifth or sixth, but in places where people actually do commerce, we're number two.

So because of the harsh growing conditions and the short summer season in Alaska, almost all of the state's fresh food has to be imported. And the vast majority of that food arrives by boat from west coast peers, mostly Seattle and Tacoma. And with only four ships coming in per week, Alaska's supply lines are stretched very tight. And Mary has actually experienced the downside of those stretched supply lines before. Here she is talking with Jim about it.

Running out of things. We ran out of this. When I was here in May, the hotel ran out of coffee because they said the supplier hadn't gotten it in and they wouldn't get it until in in May. We had we lost a ship because of a mechanical. So, if your timing was correct, you may have your coffee may have been coming up. Yeah, I went down for coffee and she said, "We are we don't have any coffee for that actually demonstrates how skinny our supply line." Yeah. No, that's that that's why I wanted to talk about it. Um I'm still I'm not traumatized by my lack of coffee, but I just was surprised at how I was surprised at how fragile or vulnerable.

We we have 6 to 10 days worth of food in the States. So we import depending on whose numbers you believe between 94 and 96% of the food consumed in Alaska is is imported. Figure we're handling 3/4 of that. Um so you know if that's coming in we we have four scheduled container ships a week. Two on Sundays, two on Tuesdays. Um if we lose a ship, you know that's 25% of the food for the next week.

Uh and it is very realistic that if you walk into the Fred Meyer grocery store and you go, "Huh, why is there no salad? you know, uh, that's why, and you know, it's an interesting take. If you go down to the lower 48 and say go to Home Depot, Home Depot's lower 48 stores have a restock where they can restock an entire store in 32 hours. So, if you're on the G Coast and they have a hurricane, they completely sell the store out. They're set up so that they can come in 32 hours later, they're totally restocked. Okay? Now apply that model to Alaska where we have no warehousing. 32 hours means if the if we have an earthquake or something happens here and they empty out the store, they place the order. 32 hours to get it to Tacoma on the dock. There's then a 66 1/2 hour float up to Anchorage and that's assuming you're on the right cycle and you don't have to wait a couple of days till the next ship leaves. So, it gets up here in 66 and a half hours and then it's got to make it from Anchorage to wherever the final destination is. So, if you're in Midtown Anchorage, well, you'll be it'll be there this afternoon. Uh if it's in Fairbanks, well, that's another day. So, suddenly your 32-hour restock, you know, could be six, seven days.

Can I ask a dumb question? But why don't you build some warehousing capacity? That was my question. Well, I don't think it's dumb. I was going to ask. So our basic problem is that we have a very small population spread out over a huge area. You know 3/4 of a million people in the entire state. So basically a city, right? And our state is two and a half times the size of Texas.

But if you really want to see it, go to Bush, Alaska. That's John Daly, an engineer who is leading a big modernization effort at the port. So go to these remote communities and then you'll really see the effect of what what you're talking about. But it's uh it's pronounced if they if they get some of these communities only get three or four barges a year basically. Milk is hugely expensive. Anything fresh is very expensive. If you go to you know I've worked living here I've worked in a lot of remote places. We're talking Kodiak or St. Paul Island or Bethl or something. Then you really see the the end of the supply chain and it's super sensitive in those locations. So, it's very it can be vulnerable here, but it's sort of fragile over there.

More vulnerable. And we're kind of a hub. It's a hub and spoke system. So, we're a hub that helps supply those areas. And if we're sensitive, they are 10 times. Yeah, that makes a lot of sense.

And now, just to make things even more complicated, the port also has tariffs to contend with. As the primary import hub from the entire state, you can imagine that the port thinks about this issue quite a bit. Not only could tariffs impact trade, all those ships going in and out of the harbor, stopping to refuel, so forth, but they could get the first look at how companies choose to respond to any increase in costs.

It also just as likely to push up the price of goods. Oh, yeah. So, they're going to face tariffs on goods, but they're also going to face port fees on goods. And so, then it's just be more expensive.

It gets worse, though, because we have we have the the death spiral. So, we raise our tariffs and then right now most of the cargo coming in are deep water vessels. But if we raise our tariffs per ton enough, uh, at some point some folks who are shipping things that are not timesensitive, new cars, you know, we'll go, you know, for the tariff, I'm just going to bring it up on a on a barge into Whittier and I'll save the tariff.

And then what happens is that then reduces our overall tonnage. We still have to make our debt payment. So, we now have to increase our tariffs more. So, we're getting into this spiral. Food prices just went up even more. And oh, by the way, you know, maybe you're not paying the tariff on your truck, but you are going to get it 10 days later than you thought you were. You know, so you're getting worse cargo service also. So, the impact on Alaskans is they're paying more for certain things like food, uh, and everything else is the cargo service is less good. Well, the the normal way that all this any kind of extra tax ships out is you either wait longer or you pay more.

Yeah, that's that's just how it works. I mean, in any of the things that's why I tried to put a optimistic uh end point on the speech is because you can I think ultimately it's you guys are very enthusiastic about what you're trying to do, but there's the other side of it which can easily demoralize people, right? It just seems like an insurmountable problem when you think of the cost structure here. But we have no option.

No. Exactly. So you can either back yourself into a corner with no option or you can just say well and be sad, right? Or you can just go forward with purpose, right? So yeah,

it's sort of common knowledge that it's expensive to live in Alaska. It just costs more to get goods and services up here. And residents understand that's part of the deal. But there are limits to just how much of a premium Alaskans are willing to pay to live here and just how much businesses can get away with when it comes to pricing. Cheryl Beckham, director of finance at the Port of Alaska, talks about this point with Mary. I mean,

I'm revealing my economist background, but it just makes sense that the price would be higher here because you have all these additional costs, but you're saying the small communities think it should be like it is in the lower 48. So, you have to split this difference.

So, there's a similar So, they understand that there's a transportation cost, but what is that market that they're willing to accept, right? So as costs go up and fuel goes up and the you know the fuel bars the tankers that bring it they cost more for So you're probably always having a little less margin up here. Right. Yes.

Right. So you do this is the really big question. How much of the extra cost coming from the tariffs is going to be absorbed by the companies themselves whether it's importers or the transportation businesses or middlemen like the port. and how much of the cost is going to be passed on to consumers which would basically risk fanning inflation again.

And that is a big deal for a state which already has a very high cost of living precisely because all this stuff needs to be imported and often sent on to really remote locations within the state. And even if you're not necessarily importing foreign goods, tariffs can still push up the price of what's made domestically. question that we're grappling with making monetary policy is there's taxes, immigration, deregulation, tariffs and those things have different likely effects etc. So one of the questions I've been asking people when we meet is do any of those things can you see any of those effects immediately affecting your business here and do you have any sense of if they will? up immediately. Uh

well, the tariff thing has come up in our construction. So, we have a lot of big construction coming up like a couple billion dollars worth of infrastructure. Sorry. Is that port specific? Yeah, that's our dock replacement. Okay. Right. And and most of that is by America uh because we're trying to get federal funding and that comes with the territory.

So, the tariffs are not directly affecting that because theoretically that's on foreign goods. However, it floats the whole pushes the whole district the whole harbor up. So the price of steel, buy America steel, buy America this, buy America that all goes up. So it has a a large effect on on that.

How how much have you seen prices rise maybe from when you originally planning it? I mean something rough. No, I want to admit that number, but it's a large number. Um, right. We started off 10 years ago with uh something that was $400 million and we're at two and a half billion now.

Right. The Port of Alaska is in the middle of a $2.5 billion modernization program. So it's a pretty bad time for the cost of materials to be going up and there's also the financing costs right if interest rates go up because inflation is rising that also adds to the cost possibly exponentially.

So can I ask a question about from all three of you is like if you think about the work you do here and the things that are facing Alaska with all the you know just the economy the changes in policy interest rates etc. What what's worrying you right now?

What worries me is financing our our project our $2.5 billion dollar project trying and we have some state and federal funds. The rest of it is slated for uh local revenue bonds. Okay. And that's Do you think those will pass? They've given us authority to issue those. But the question is how how much can you push into the market um once and it puts our debt load from whatever it is 50 million we have now up to billions. 1.1 we have authority for 1.1 billion.

It greatly increases our debt load. So that's the biggest. So our our goal is one third one third one third one third federal money one/3 state money 1/3 local money for our ne our next doc it's going to be roughly $900 million right at this point we have 90% is going to be local 5% state 5% federal. If we go forward to finance the 90% that's the local share uh after 40 years 2.2 uh 2.28 uh billion dollars is what we're going to pay back for 900 billion. So you know with that the cost of financing is going to be huge and what is that going to do to overall cargo rates? Remember, one of our things is we're trying to maintain a cost-effective cargo system. Uh, and boy, when do we get crushed?

Speaking of effective cargo systems, a huge chunk of Alaska's imports go through the port, as we've been discussing. But it is not the only logistics hub in town. Right. To get a complete picture, we've got to check out the airport, which is exactly where Mary is heading next.

How much would a plane like that cost? 3 million. Yeah, that's you lightly used. 3.8. We have We have a We have a handful of those. Yeah. What are the planes that go out completely? Um, I'm Susan Alt. from the Alaska International Airport's system controller and we're all glad to have you here today to show off our system. Uh so I'll go ahead and get going. So what is the Alaska International Airport System, also known as AS? It is made up of Ted Stevens Anchorage International Airport, which is the largest passenger airport in the state of Alaska. It's also the fourth busiest cargo airport in the world and the second busiest in the United States.

Anchorage's impact is the largest airport in Alaska. Passenger activity for fiscal year 25 ended at 4, excuse me, 5.4 million passengers served. Air cargo for 2025. We had 3.7 million tons um for 2025. And again, as I said, we're number two in the USA and number four in the world with regards to cargo. Um, we support one in seven jobs in the Anchorage area and provide 1.8 billion in annual economic impact to the state. And you can see on the screen about the direct jobs and wages impact versus the indirect and induced uh jobs and wages. So, we're pretty significant economic boom for the state of Alaska.

Air transport is huge for Alaska and the Anchorage airport basically acts like a truck stop for the whole state and really global trade. Fully loaded cargo planes moving stuff from Asia, the Middle East, parts of Europe will stop here to refuel on their way to the rest of North America. And for Alaskans, it's the main depot for most of the goods they order from elsewhere, which are sorted in the huge FedEx and UPS hangers before being distributed throughout the state.

It's also a commuter hub. Many of the oil workers on the North Slope work in two week on, two week off shifts. They catch a small plane up to the fields where they live in company housing while on the job and then they return to their families and hometown for the rest of the month.

Effectively use that as a suburb. Suburban. How many people? Yeah. So this is the conical Phillips if you come from airplane that's going up to north slope. So if you're a slip worker and you work 2 weeks on two weeks off really you can live in Kenai have a nice Alaska lifestyle over there hop on a grand aviation plane up in 35 minutes you're at the door you walk over the next terminal and get on your north slope like the rest of the country housing is a major issue even in a state with say it with me Joe twice the land of Texas yeah as we've seen over and over Alaska faces all the issues that the rest of the US does only at least right now more acutely there's a variety of other things going on and if you're already your infrastructure is already a little vulnerable then you you can imagine any shock we get in the United States just in that I mean sorry to the United States you get it amplified

yeah no that that's absolutely true and so leading indicator which helps me make good decisions when I talk to all of you

Mary is going straight from the airport to the airport I guess she's flying to the lower 48 and there's obviously a lot of possible takeaways from the trip. You this cost structure of Alaska was something I think we learned the most about today. Just why are the prices so much higher and where would you ever try to mitigate that? And of course the things that are going on like inflation or just changes in how goods are shipped or supply chain challenges, they're just magnified in Alaska.

And I think we also learned, you know, I learned that they happen here first. It's it really is sort of this canary in the coal mine almost that when you see it here, you know it's coming elsewhere. It's going to be lower in all likelihood because there's other ways to ensure yourselves, but you're going to see it.

We don't know exactly what was discussed at the Fed's September meeting, or at least we don't know until the transcript is published in like 2030, but I think you can get a good sense of what a trip like this actually adds to the conversation when Fed governors are all sitting around the table trying to figure out what to do next.

So, one of the things that is challenging right now, it was challenging back in the days when we were trying to fight high inflation and it's definitely challenging today when you're trying to figure out the real impact of tariffs not not only on growth but on the on inflation as just one example unpacking what's happening in Alaska and knowing at whatever point how long this is going to take because of the you know the nonf fungeability of steel the interoperability of some of the supply chain networks all of those things give me insights that I can then take back to the meeting.

And then it's not just us exchanging forecast. I think they're going to be like this long. I think they're going to take this long. It provides evidence, underlying evidence that you can't find in your statistics because the statistics we the statistics we just don't know. All we're doing is projecting. But now we have our projections filled out by data and information. And that makes a huge difference when you're trying to make good policy.

That's it for our special Alaska episode. We hope you enjoyed tagging along with us and Mary on the Anchorage Expedition. Joe, what stuck out to you? So many things stuck out to me from that trip. You know, like being in Alaska, it really did feel like the end of the world, didn't it? like that that the edge of the empire here. Yeah, it definitely felt frontier- like for sure.

I've been in rural areas before, even more rural obviously than uh an urban area like Anchorage, but I've never just felt distant like I did in Alaska. And so, it's very easy to understand why it's a state permanently in a state of sort of supply chain stress. Yeah, that's what really stood out to me as well because when you go to a place like Anchorage, I mean there are a lot of the same restaurants and chain stores that you would see in any other place in America, the difference is all that stuff has to be transported thousands and thousands of miles to get there.

Yeah. No, it's a constant strain. Uh just extraordinary. You know, I knew these things about how far-flung everything was, but then say going to the airport and seeing how small planes served the just sort of worker commuter system was really eye opening. Or just the sheer number of people who own planes themselves, you know, like they have uh these uh uh pontoon planes in the water that in another state would be how people would have their boats in the marina except Alaska. It's planned. Like it's just it's permanently it's permanently stretched. Do you uh think we could go to Hawaii next? That's in the 12th district, right?

Uh let's do it. I'm down. Shall we leave it there? Let's leave it there. This has been another episode of the Odd Thoughts podcast. I'm Tracy Aloway. You can follow me at Tracee Alaway. And I'm Jill Weisenthal. You can follow me at the stalwart. Thank you to Mary Dailyaly and everyone at the San Francisco Fed, including Jen Chamberlain, for letting us come along on their factf finding journey. Thank you also to the Port of Alaska, the Alaska International Airport System, and Northern Solutions for the tour of their facilities. Thank you to Ashley ENET of the Anchorage Economic Development Corporation. And a final thank you to all the Alaskans who took the time to talk to us about their state. Everyone was so friendly. And don't forget Scrappy.