Fed official: Banking system generally healthy, inflation battle on track

Banks in Arizona and western states are benefitting from a generally solid economy with ongoing growth and steady employment and remain “safe and sound,” a top Federal Reserve official said in Phoenix.

She said banks are probably anticipating a bit less regulation coming from Washington.

“The national economy is in a good place,” said Mary C. Daly, president and CEO of the Federal Reserve Bank of San Francisco, at a conference geared to community bankers and hosted by the American Bankers Association. Businesses in Arizona and other Western states seem more optimistic than those in many other parts of the nation, she added.

Daly spends much of her time traveling around to meet with business representatives and others in her district, which encompasses nine states including Arizona. She spoke Feb. 18 at the conference, held at the JW Marriott’s Desert Ridge Resort & Spa.

Daly said Fed officials haven’t received any specific directives from the Trump Administration on how to do their jobs. The central bank has operated independently from the White House since 1913, working to coordinate policies that keep inflation low while promoting economic growth.

“All administrations want the same thing,” she said in an interview with the Arizona Republic, citing economic growth, steady employment and low inflation.

Daly, who also participates in setting the Fed’s interest-rate policies, said she hasn’t sensed unusually high concern from bankers or businesses over the Trump Administration’s tougher immigration stance and its potential impact on employment, nor on the imposition of tariffs, though some companies appear to be stockpiling inventory.

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Daly has visited Phoenix before, in October 2023, when she described steady progress in bringing down inflation, which back then was hovering around 3.7%.

That visit came in the aftermath of three large-bank failures in early 2023, including Silicon Valley Bank, which had a presence in Arizona. But Daly said banks in the current environment are in “really good shape.”

The banking industry continues to consolidate, though failures are at low levels.

The number of banks insured by the Federal Deposit Insurance Corp. dropped by 21 to 4,517 during the third quarter of 2024, the latest period for which the FDIC has provided data. Of those 21 banks that are no longer around, most merged with others. Only one bank failed in 2024, according to FDIC reports, but one already has gone under in 2025 — Pulaski Savings Bank of Chicago.

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Community bankers, who represent smaller and more localized institutions, have been complaining about excessive regulations for years. With a new administration in Washington, John Asbury, chair of the American Bankers Association, said he looked forward to a more “common sense regulatory framework,” with fewer complex rules that bankers sometimes struggle to implement.

For example, the association opposes the federal Community Reinvestment Act, which is designed to encourage lending to lower-income and other groups but which, the ABA said, discourages bankers from offering certain products or lending outside of their area networks.

He said the last several years “have not been particularly hospitable,” with bankers forced to divert too much time and effort to dealing with regulations. He also took a jab at credit unions, which tend to compete directly against community banks yet have an advantage in that they don’t pay most federal, state or local taxes.

Daly acknowledged elevated concerns among bankers regarding regulations but also cautioned that too little oversight can be hazardous as well.

“Regulations are tools,” she told the bankers. “They need to balance protection of the consumer and the financial system against costs to financial institutions, innovation and economic growth.”

Also at the conference, Michelle Bowman, one of the governors of the Federal Reserve Board, predicted inflation will slowly ease later this year, though progress might be “bumpy and uneven” and the Fed’s goal of 2% inflation could remain elusive. The nation’s inflation rate currently stands at 3%, though it’s lower in metro Phoenix at 1.6%.

Bowman dissented from the Fed’s decision last year to cut interest rates out of concerns that the economy was too strong to support such a reduction. Now, though, she described the Fed’s position as in “a good place,” allowing her and her colleagues “to be patient and pay closer attention to the inflation data as it evolves.”

The economy, she told the bankers audience, “remains strong, with solid growth in economic activity and a labor market near full employment.”

Reach the writer at russ.wiles@arizonarepublic.com.

This article originally appeared on Arizona Republic: Fed official: Banking system healthy, inflation battle on track