Regional Federal Reserve Boss: 'Still A Lot of Precariousness' in the Economy
Federal Reserve Bank of Atlanta President Raphael Bostic on the need for more economic stimulus from the federal government, the uneven rebound, and a more vocal central bank on race and the economy.
Economic uncertainty and precariousness are what Raphael Bostic hears from a lot of people around the southeastern U.S.
It is the area covered by the regional Federal Reserve Bank that he leads. Bostic is the president of the Federal Reserve Bank of Atlanta and its territory includes Florida.
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"Many places and many sectors are not seeing a lot of recovery right now," he said during a FaceTime interview last week from his office in Atlanta.
He sees the economic recovery that began in May is slowing. "But the most important part of this economic experience is that the recovery has not been the same for everyone."
Tens of thousands of people in South Florida still are waiting for any signs of recovery from the free fall in the spring. About 100,000 fewer people were part of the labor force and there were 250,000 fewer jobs in the area in August compared to a year earlier.
Some communities "continue to see stress and haven't really felt that things have gotten appreciably better in the most recent months without (government) relief," said Bostic.
There remains no agreement between House Democrats, Senate Republicans and President Donald Trump regarding an additional economic stimulus package.
The Federal Reserve has taken unprecedented steps to help the American economy avoid a deep and long-lasting economic depression. It has cut its target interest rate to zero and has pledged to keep it there for a long time.
It has acted to buy hundreds of billions of dollars of all kinds of bonds to encourage banks to loan out money. And the Fed has been more vocal regarding race and the economy.
The central bank also has been very clear in its hopes that Congress and President Trump forge another economic stimulus package. There have been on-and-off talks about what a new deal could bring, but there has been no agreement on how much and how to spend any stimulus money.
Bostic says Federal Reserve surveys of businesses indicate companies are pushing out their expectations for a recovery. This spring, many believed business would return by September.
"I think everyone has started to realize that this is going to last a lot longer than they might have thought otherwise," he said.
If we don't get the public health part in order, it's very hard to imagine how the rest of the economy is going to just rebound.
With its reliance on travel and hospitality, what the Florida economy needs, Bostic pointed out, is "to get the virus under control."
"If we don't get the public health part in order, it's very hard to imagine how the rest of the economy is going to just rebound. Because you're going to have consumers who are going to be afraid to go to stores for fear of contracting something to bring it back to their families. You're going to have business leaders who are going to be reluctant to invest over longer periods of time because there's so much uncertainty about what demand for products is going to be. You're going to see sectors that were perhaps precarious before, get even more so. And you might see a cratering of demand and loss of jobs."
While Florida's economy has seen some jobs return, pandemic-fueled layoffs are not over. In late September, Disney announced it was laying off more than 6,000 workers. Thousands more at American Airlines, the main air carrier at Miami International Airport, are being laid off in absence of more government support for the airline industry.
Bostic said these job cuts represent an acknowledgment by business leaders that "it's going to be very difficult just to mark time" waiting for government assistance and a bounce back in the economy. Instead, "they're going to have to start making some more dramatic and drastic decisions about how they're going to run their businesses."
One risk is those layoffs becoming permanently lost jobs. As the pandemic wears on, long-term unemployment is growing. In September, more than half of unemployed Americans had gone almost four months without work. While that was down slightly from August, it represents a big jump compared to pre-pandemic levels.
"I'm hopeful that that leaders in Washington do understand that without that support, there are going to be parts of the economy that are going to really struggle to recover," he said.
Housing Holding Up
The housing market has not just held up during pandemic, it has gained strength in South Florida despite the sharp rise in unemployment. Isolation, remote work possibilities and historically low borrowing rates have helped underpin the regional housing market.
Bostic resisted labeling the boom in housing prices a bubble though. Instead, he sees the residential real estate market as a reflection of low interest rates, and the uneven economy.
"Many people with relatively high wages are still pretty secure in their jobs," he said. At the same time, he acknowledged the dynamic risks widening the wealth gap. About one in 12 South Floridians are behind on their rent or mortgage, or worry they will fall behind next month according to U.S. Census Bureau data.
The virus is "exacerbating" the "disparate economic experiences in the U.S.," he said.
Systemic racism is a yoke that drags on the American economy.
Race and the Economy
As the pandemic has shone a spotlight on racial health inequities, demonstrations for social justice — sparked by the killing of George Floyd by a Minneapolis police officer — have ignited a more public discussion amongst the usually staid Federal Reserve regarding racial economic inclusion.
In June, Bostic took an unusual step. He wrote and published an essay not on interest rates or arcane banking regulations, but what he called "A Moral and Economic Imperative to End Racism." The web post featured a contemplative black-and-white photo, with Bostic's back to the camera.
In it, Bostic argued, "Systemic racism is a yoke that drags on the American economy." He then laid out three roles the Federal Reserve can play toward removing that yoke permanently.
In the interview with WLRN, Bostic expanded on his first strategy — monetary policy. He described the central bank's recent review of its strategies and goals, resulting in "a rethinking of what maximum unemployment is, and thinking about maximum unemployment from a far more expansive and inclusive perspective."
Maximum unemployment is one of the twin Congressional mandates for the Federal Reserve system. The other is steady prices. This more inclusionary thinking, Bostic said, could make the Fed "more reluctant to take aggressive and proactive and preemptive steps to slow down the economy that we think might be at risk of overheating before we actually see any evidence of that."
For many years, the Fed was seen as acting in advance of an overheating economy, by raising interest rates in an effort to extinguish any early signs of rising inflation.
"The people who get the jobs last (in a growing economy) are the ones who lose their jobs first," he said. "So we wind up with far more volatility in communities and far more disruption. And those tend to be in lower income and minority communities."