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.

• Daly says that's unlikely to be true, joining a crew of economists, including Nobel Laureate Joseph Stiglitz, which has vouched for the economic efficacy of big spending on infrastructure.

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."