Transcript: WSJ’s Interview with Cleveland Fed President Loretta Mester
Transcript: WSJ’s Interview with Cleveland Fed President Loretta Mester
Loretta Mester, president of the Federal Reserve Bank of Cleveland, sat down for an interview with The Wall Street...
Loretta Mester, president of the Federal Reserve Bank of Cleveland, sat down for an interview with The Wall Street Journal’s Michael S. Derby on Thursday, July 7, 2016. She discussed the U.S. economic outlook, the effects of the U.K. vote to leave the European Union and the likely path of U.S. interest rates.
Here is a transcript of the interview, lightly edited for clarity and length.
MR. DERBY: OK. So I think I will just go ahead and start out with kind of the obvious point of just where we are in the economy right now. Obviously, it seems like a bit of an uncertain time, or particularly uncertain time. Maybe you’ll disagree with that, but just want to know your sense of where we stand just at this moment and where you think we’re heading in the near term.
MS. MESTER: Yeah. So, you know, going into the June meeting and coming out of that meeting, my view was the economy was in really good shape, you know. I was less concerned about the weak May employment report because I’d put it into context. I’m always cautious about reading too much into one or two monthly reports because we know there’s volatility in there.
And, you know, if you looked at, adjusting for Verizon, the monthly growth rate over the last three months had been 127K, and we know from our estimates that somewhere between 70(,000) to 120(,000), or 75,000 to 120(,000) per month is about what would keep the unemployment rate constant. So the –
MR. DERBY: I’m sorry, 75(,000) to 125(,000)?
MS. MESTER: Yeah, that’s like a range if you base it on different models. So the number—so 75(,000) to 120(,000) was about that range. This was 127(,000), so it was above the level. So that would still put downward pressure on the unemployment rate. And a lot of other indicators were suggestive of continued strength in the labor market. So we’re going to get the next report tomorrow and we’ll have a better sense of that. But again, my read of the data at that point was, you know, we were still making good progress on labor-market conditions.
My own view is, from the point of view of what monetary policy can do about it, we’re basically at full employment. And my read of the inflation data was that it was basically playing out the way the (Federal Open Market Committee) had anticipated, in that it’s been below our goal for some time, but as the value of the dollar had begun to stabilize, as oil price has begun to stabilize, the inflation measures were moving back up, and the core measures were moving up and were above the total—the headline number. So again, the dynamics there were moving in the right direction.
And my read of inflation expectations were—I rely more on the survey measures than I do of the market expectation-derived measures, just because we’re in a period of a lot of volatility, so I think it’s harder to infer inflation expectations. So those pieces together suggested to me that we’re moving towards our goal. And as we continue to move towards our goal, you would expect to have a gradually increasing path of funds rates. Obviously the slope of that path and the exact timing of when those moves would occur depends on how economic, you know, developments come about, what the outlook—how the outlook changes, what the—risks around the outlook changes. So that’s a case for, you know—you know, continuing on our medium-run outlook.
Now, the Brexit decision, of course, was pending. So it was coming up the week after that FOMC meeting in June and, of course, at that point it made sense, like, why—you know, no urgency. We’re not behind the curve. So it made sense to me not to take a move then.
Since that decision, of course, most people were surprised, I think, by the outcome of the decision. And so there is increased uncertainty about the global economy, certainly bigger effects in the U.K. and Europe than I would expect to see in the U.S., but we still have to be very attuned to that—those developments.
And what I’m doing now—between now and our next meeting later in July—is just assessing conditions. So, you know, we’ve seen an increased volatility in the financial markets. We’ve seen safe-haven flows into U.S. Treasurys, which have meant very low, you know, 10-year Treasury rates. I think we just have to keep monitoring the situation. It’s going to take some time to play out, just because, you know, how the EU and the U.K., their negotiations are going to take time to play out. Eventually the global economy will react, you know, and adjust to those things, but I don’t think we’re going to have certainty about that for some time. And that certainty can affect activity. And so we’ll just have to, you know, continue monitoring to see what those affects are. I don’t think anyone knows right now what the magnitudes of those affects are.
As you know, the Bank of England, [Gov.] Mark Carney, did a—highlighted the uncertainty aspect of a Brexit. And that was one of the rationales for making the move they made to ease conditions—credit conditions.
MR. DERBY: Would an extended period of uncertainty, with events that take some time to play out, landing in the middle or at some point along this process where you had been expecting rates to go up –
MS. MESTER: But the real question for us, as U.S. monetary policy makers, is, has the medium-run outlook for the U.S. economy been materially changed, right? And that’s, I think, the way I think about it. So I always think about, well, what are the underlying fundamentals, right? Have they been affected, right? And I think the underlying fundamentals remain very solid for the U.S. economy. But then—right—then, has there been a material change in the outlook? And frankly, I’m going to use the time from now until our meeting in July to sort of continue to assess that.
Again, what’s the mechanism through which the U.K. decision might impact the U.S. economy? Well, one would be through financial market conditions. And in particular the value of the dollar would be a factor, because we’ve seen that’s had a depressing effect on net exports here. The uncertainty could affect activity here if investors and households decide that it’s too uncertain to take action. But remember, net exports are a small part of the U.S. economy, so that direct trade impact is probably less.
I would think that maybe some of the financial market conditions and also uncertainty might have—be the mechanism through which it affects the U.S. economy. But again, right, my expectation is that these effects would be larger in the U.K. and Europe than in the U.S. But again, you know, I think we’re not going to know for sure and we’re going to have to make an assessment in our best judgment about that. And again, looking over the medium-run outlook, because that’s the time frame over which monetary policy affects the U.S. economy.
MR. DERBY: Well, a lot of officials have been talking about—you know, up until fairly recently—prospects of raising interest rates again at some point over the summer. Do you think there will be enough certainty or clarity on the outlook to do that?
MS. MESTER: So I don’t really want to predict the outcome of any one particular meeting, because I don’t know what the outcome is going to be until we get into the meeting. I like to hear what the discussion is around the table every time I go in there because I learn from, like, different perspectives from my colleagues.
You know, again, I think we have to just focus on—we’re always operating in a world of uncertainty, right? And we always have to, as economists and forecasters, sort of take onboard that we’re not going to know everything for sure, but we have to make our best assessment using our models, best analysis that we can, of what that medium-run outlook looks like. And that’s the basis for then deciding whether, you know, a gradual upward path still is our best assessment at this point of where interest rates are going.
You know, what particular meeting or what that—how gradual that path will need to be is going to depend on economic developments. And you know, we’re constantly assessing those. We’re constantly assessing how that affects our modal outlook, but also the risks around that outlook. And I think, you know, we’re going to gather data.
So Brexit is only one of the things that is going to affect sort of our viewpoint. We’ve got—continuing to get incoming information about the U.S. economy, right? The labor market report tomorrow is one of those, what’s happening with inflation. You know, we’re going to always assess where we are relative to our goals, are we continuing to make progress on those goals; and then, based on that, decide what appropriate monetary policy will be.
MR. DERBY: Does the dot plot guidance really have much to offer us right now, given the uncertainty? I mean, because people do look to that and say the Fed is roughly eyeing a certain amount of rate rises over the course of the year or into the future. Is that not—given the uncertainty right now, should people not be doing that?
MS. MESTER: So I am—I think of the Summary of Economic Projections as a whole as actually a useful communications device. Yes, it shows that there are different views on the committee about, you know, the economy, right—growth, unemployment, inflation—and the policy that’s appropriate. But I think that’s actually healthy for people to see that there are different views on the committee. And we’re in—as you say, there is some uncertainty out there. So I would—I would anticipate that we’d see some difference of views out there. So that doesn’t trouble me. I think it’s a good indicator of sort of that diversity, and I think we owe the public to show that.
The one thing I would like us to do in those dot plots—and we talked about this at the FOMC meeting—is to put some uncertainty bands around that median path, right? So we offered the median path as sort of a—as a summary statistic of sort of, you know, what’s the median view across all the participants. I think it’s also important to indicate that there is uncertainty around those median paths because of some of the things we’re talked about. There’s different views of the world. There are different shocks that can hit the economy, and different economists and policy makers have different views of which ones are more likely. I think if we added those uncertainty bands, I think that would be another thing that would increase the value of those, and help the public interpret those.
MR. DERBY: Are you any closer to getting there?
MS. MESTER: You know, I think it’s, you know, an ongoing discussion that we need to have. I certainly have shown some error bands around forecasts when I’ve gone out and talked. And you know, then you can explain a little bit about, well, look, you know, if you think about—and it’s not that there isn’t some indication of that in the SEP right now. So there is a table—when the minutes come out in the SEP portion, there’s a table that shows the historic forecast errors, OK? And if you look at those, you could—you get a good sense of, you know, the errors around those forecasts.
So, for example, an inflation forecast one year out, the error band is plus or minus one percentage point. So that kind of gives you a sense. And even though then the Fed is setting policy, there’s going to be an error band around that interest-rate path because shocks hit the economy and the view of what’s appropriate policy then is affected by the shocks that hit the economy. So you know, predicting that path, there’s also an error band around that. So again, I just think that would be a valuable addition to the—to our SEP if we could convey that.
MR. DERBY: Well, I’m sorry, I’ll ask you again, just because this is the sort of thing people really want to know about. But is the uncertainty going to be such that it would be a high bar to—if the economy continues—if the data holds together, if the jobs report pops back up to trend, is the uncertainty related to Brexit still enough that July would probably not be a good time—
MS. MESTER: So I think there’s going to be a diversity of views around that table. I can’t predict what the outcome of the meeting is going to be. But I think you’re right in the sense that everyone’s going to be assessing, right, the whole gamut of data that have—that have come in, and assessing it again, OK, has that changed my outlook for the economy? And that’s kind of a thought process that’s going to be happening between now and July, in subsequent meetings and subsequent meetings. So again, it’s always thinking about, you know, what am I inferring from the data and what are the risks around that, right?
So we all have to come up with a—we all write down our SEP predictions, right? But we know that there’s some risks around those predictions, and the SEP gives some indication of those risks as well.
MR. DERBY: What is your balance of risks right now?
MS. MESTER: So I’m pretty much balanced because I think there’s—and of course, you know, we’ll get another round of those in September. But you know, at the moment, if I think about the balance of risk around the medium-run outlook, right, I’m seeing balance, because I do think they’re—you know, I don’t think we’re behind the curve, but I do think that, you know, there are risks of waiting too long to move on interest rates, OK? Some of them will have to do with financial stability, right? And the FOMC has said, you know, we monitor conditions for that very thing because we know holding interest rates very low for a long time has the potential, right, to foment (inaudible) behavior and other kinds of things that could then feed back through the financial system on the—on the real economic outlook. So we are continually monitoring that, right?
I think there’s also some chance that if we waited too long beyond what’s appropriate, that we’d have to then raise interest rates at a much faster rate than we’re currently anticipating. And that could then engender a whole ‘nother set of risks to the longer-run outlook. So we have to be careful for that.
And I also feel that, you know, there is some risk that if we don’t exit appropriately from this period of, you know, nontraditional monetary policy, that, you know, the public may begin to feel that it was not an effective policy. And that may damage our ability to use these nontraditional tools in the future.
And that, I know, is not a standard kind of risk that we think about. But again, you know, we are in a world of lower interest rates than probably before the crisis, for a number of reasons. You know, you know about the work that’s gone on in terms of the equilibrium real interest rate and lower interest rates. And in a world where that’s true, if it’s 3.25%, 3%, you know, your probability of getting low—you know, having a negative shock, right, and sending you into a place where you’re going to have very low interest rates, or appropriately low policy rates, where you may need to use some of the nontraditional tools, is higher than it would be if the equilibrium rate were higher. And so I do worry about, you know, making sure that we’re attuned to that kind of risk as well, because that would affect the longer-run outcome of our economy.
So again, I see some upside risks in terms of, you know, us—if we leave—if we don’t properly assess both the upside and downside risks, you know, I think that could also get us into trouble. So I think it’s very easy to say there’s a lot of downside risk. There’s always uncertainty, right. So the status quo is kind of always sort of a modal thing, right? It’s hard to—it’s hard to move things.
But if you were to wait for every piece of data to line up perfectly to tell you, OK, it’s time to go, then I think you would have waited too long, because the world just doesn’t work that way. Uncertainty doesn’t evolve that way. The data comes in with lags. There’s, you know, variability over—
MR. DERBY: But you’re not making an argument that you have to raise rates in part because you know at some point you’re going to have to lower them?
MS. MESTER: No, I’m not making that argument.
MR. DERBY: OK.
MS. MESTER: I’m just saying that at some point, if we don’t get out of this period of extraordinary monetary policy at the appropriate time, then I do think that the public may conclude that it was not a successful endeavor, even though I do believe that it was. And that would effectively take those tools—make it much harder for the Fed to use those tools if and when we get into a situation where they’re needed. And so I think of that as part of, you know, why you want to be thinking about, right, when it’s time, when you’re not going to—you know, when you think that the economy’s moving in the right direction, which I think it is, that you’d want to continue on that path towards normalization.
MR. DERBY: I mean, is it really just too soon to say how the Brexit risks could weigh on the economy?
MS. MESTER: I mean, I think we’re going to be evaluating that. So, yeah, I mean, we’re not going to know, right, how those negotiations between the EU and the U.K. in terms of their new trading relationships, their labor relationships, when they invoke Article 10 to actually start the process of making those negotiations. So that’s going to be a longer time.
But we will get information on, you know, what’s happening in the financial markets. You know, are firms, you know, taking—still doing safe-haven flows into other assets? You know, we’ll have a sense on, you know, the dollar appreciated; is it going to remain appreciating, is the rate of appreciation going to continue? So we’ll have more insight into that. Will it be resolved? No. That’s going to take some time to play out. We’re not going to know the magnitude of those effects for some time. But we’re going to have to figure those in as we think about the outlook for the U.S. economy.
MR. DERBY: Well, so, financial conditions. I mean, the bond yields are down. I guess the 10-year note hit a record low.
MS. MESTER: Yeah.
MR. DERBY: The safe-haven flows are here, and the dollar is up and the pound is down, and the euro is suffering.
MS. MESTER: Yeah, yeah.
MR. DERBY: So what is your assessment of financial conditions right now? I mean, is this a—is this a fast reaction to what just happened or something more enduring?
MS. MESTER: Yeah, so that’s the part we’re going to have to continue to evaluate. I think we can’t say that for sure, like where things are going to settle out. You know, credit risks—I mean, credit spreads were up a bit, right, because when the Treasury bill going down is in some sense a good thing for some parts of the economy, but it’s the credit spread that, you know, would be the financial condition you would look at. If you look at sort of the value of the dollar, it went up a lot, like, on the vote, right? It’s come back down a bit.
But again, it’s depending on sort of—I mean, I think the central banks of the world, you know, reacted in the way that was appropriate on the announcement, which was basically to say we’re here, we’re standing ready to add liquidity as needed to backstop. So that’s—I think that’s the first thing that you do when you have a situation like that, and that happened. And of course, the U.K. has taken action based on their assessment of the risks to their—to their economy.
On the other hand, as Gov. Carney pointed out, right, the fact that the U.K. pound depreciated is actually supporting their trade flows. So, again, again, we’re just going to be assessing those conditions as we go forward. It’s going to depend how things settle down and the risks around that.
MR. DERBY: Do bond yields bother you right now, at their levels?
MS. MESTER: I mean, it’s a global phenomenon that they went down. Again, I think that it’s really hard to determine whether that’s based on fundamentals or whether that’s really this flight-to-quality issue. And so that’s what I’m going to be trying to assess, is how much is just flight to quality and how much of it is just more fundamental that we need to be thinking about. So I know that’s a balancing act there.
MR. DERBY: Yeah. I mean, how long does it have to be before you can make that determination? What’s your—what are you looking at—
MS. MESTER: But again, I don’t think we’re—I don’t think that the Fed, in terms of our setting of monetary policy, is behind the curve. So I think we do have time to assess conditions and to come to some, you know, determination of where the economy is headed. As I said, I’ve been one of the most positive ones in terms of the outlook for the U.S. economy, and I continue to be positive about it. But I have to take onboard, right, that there is increased uncertainty, and I recognize that that increased uncertainty can affect the U.S. economy. Certainly investment has been low, productivity growth has been low, and that factors into my view as well. I would expect both of those to pick up as economic growth continues to expand. But again, I think that’s one of the things I’m focusing on, to see whether that happens.
On the labor side, obviously the May report was disappointing in a lot of respects. And I want to see, you know, whether that was just the one-month aberration that I think it probably was, or whether it’s a more lasting thing.
But again, the other thing to remember about the labor market reports is, you know, we’ve had very strong reports at the end of the last year, beginning of this year. And in some sense, that might have been the bigger surprise, given that as we get closer and closer to full employment, right, you would expect the growth rate of that payroll number to come down. Again, the number is between 75(,000) and 120K per month as being sort of the steady state—no change in the unemployment rate.
MR. DERBY: It’s just harder to get those kind of job gains, because, you know—
MS. MESTER: Yeah, as you get closer. So again, right, the real issue for people—I think the way to assess this is, will we continue to make—see improvement in the labor market? And I would say if the numbers hold up at the pace they have been over the past three months, adjusting for horizon, I would say yes, because that’s above that level.
And in some sense, we shouldn’t be expecting 200,000, 225,000 jobs per month to be maintained at that level, right? That’s just not the equilibrium level. So again, the closer we get towards, you know, maximum employment, the more you would expect the rate pace of improvement to slow down.
MR. DERBY: What about wage gains?
MS. MESTER: So wage gains typically lag improvement in the labor market. Certainly that’s been happening now.
There was some evidence from even in the hard data now that we have seen a bit of an acceleration. And certainly when you talk to employers, certainly in my district here, you know, they have been struggling for some time to find workers. And what I think is striking is that—so early, those reports were really concentrated on, you know, hard-to-find job—high-skill in IT, certain specialty construction. Now I’m hearing it more and more from a wider swath of industries, even banking, you know, retail, and for lower-skilled jobs.
So again, this is sort of showing that there is improvement on the ground in labor markets, not just in the data that firms are, you know, hiring; more reports of retention bonuses to try to keep workers, more reports from some of our employers that they have had to increase starting wages to bring people in. I’d like to see it go faster, but I do see positive there, that we’re beginning to see some of that.
MR. DERBY: And if I recall correctly, you don’t see big links between wage gains and inflation?
MS. MESTER: No, I typically don’t because I think it’s based—from what we’ve observed in terms of the Phillips curve, is that that’s a very tenuous relationship. I see more in terms of stable inflation expectations and just the overall growth rate being—I see growth—you know, my forecast is for growth to be maintained slightly above trend, which I put at 2%.
And, you know, if you actually look at the dynamics and the inflation path, you’ve kind of seen that as the earlier shocks to oil prices and the dollar kind of worked through, that the measures are moving back up. So inflation today is higher than it was a year ago, right? And headline inflation has been running around 1% for a while, and then the core measures have been moving up. And inflation expectations look about stable.
So the Cleveland Fed does an inflation expectations measure that kind of combines the survey measures with market data.
MR. DERBY: Is that the 10-year—
MS. MESTER: Yeah. So if you look at that and you look at, like, five-year—five-years ahead, which is nice because it takes out sort of the movements in, like, oil prices that can affect sort of the near term, that’s been stable at around 1.9 (percent), you know, for a while. So again, you know, those indications are that things are moving in the right direction on the inflation front.
So we’re certainly not there yet, but again, I don’t think it’s wise to wait until we have met both of our goals before we start moving interest rates back up gradually. So again, it’s sort of balancing—you’re going to have to move before you hit the goals, because you can’t affect the economy until over the immediate run. You know, it takes a while for monetary policy to act. So I think you have to start moving, you know, before you actually reach our two policy goals.
And as I said on labor markets, I think from the standpoint of what monetary policy can do, we’re basically at full employment. Now, when I say that, I sometimes feel that people don’t think that I fully appreciate some of the struggles that people are going through in the labor market.
MR. DERBY: That’s the common response to that.
MS. MESTER: Right. Yeah, and I guess I do—I do really understand that there are a lot of people struggling still. I think the recession—certainly the financial crisis and the Great Recession and the slow recovery really exposed and exacerbated problems that were longstanding problems in the U.S. labor market. I think there’s a skill problem in terms of there’s new jobs coming in, right, that require higher skill sets. And I know there are some people that find it hard to transition.
And I do think there is something that government can do about that; I just don’t believe that monetary policy is the effective way to address that. And so I think of things like training programs, public-private apprenticeship programs that some people in our district are setting up, which is good. I think of workplace development programs. I think aid for students so they can get the necessary skills. And it doesn’t have to be a four-year college degree. It can be other kinds of programs that train people for the modern workforce.
I think all those things can help this problem. And it’s going to be a continuing problem because there’s globalization and then there’s also technological change, right? And that’s changing the nature of the jobs that are out there. So I do think government has a role there. I just am skeptical that monetary policy at this point can do much about that problem. And I think there’s other things that can be done and should be done.
MR. DERBY: Well, the Fed Up group, that may have been pushing not to raise rates, in part to help the—you know, benefit—to help extend the benefits of a strong labor market throughout the economy. And there are cases that it hasn’t and there’s a lot of people who have been left behind. And you’re saying—you’re making the argument there’s only so much we can do and that these other pockets are going to have to be addressed through other programs, correct?
MS. MESTER: Yeah. So Common Good came here, and they’re one of the programs that’s sort of associated with Fed Up. And it was a very good conversation, I thought. And, you know, they did talk about sort of their view of monetary policy and the fact that they wanted to maintain very low interest rates. And I tried to point out to this issue, because in some sense I would hope that other groups like that would also recognize that there may be other methods that can help this problem.
And again, these are longstanding problems. These are not just problems that have grown up over time. You know, the Fed is—you know, (Federal Reserve Chairwoman) Janet Yellen, in her press conference, was asked this question about unemployment rates by gender and by ethnicity. And it is true that there are—they’ve all moved in the right direction, right? They’ve all come down, which is very good. There are still gaps, but those gaps are longstanding gaps. And there is something that should be done about those. It’s just that monetary policy just isn’t going to be effective against that kind of thing.
And so, you know, there’s probably other things—other programs that—you know, government policies that could be effective in sort of solving those problems, and I’m in favor of doing that. I just don’t think that monetary policy is the most effective thing. And I get a little bit concerned that the focus on monetary policy as the tool for addressing that takes the focus probably off more effective policies that would—should be brought to bear, right?
So we don’t want to sort of put all our eggs into monetary policy, which, in my personal view, can’t at this point do much to solve those structural issues, because it diverts attention from perhaps programs that we should be thinking about encouraging that it could do something about.
MR. DERBY: Does the Fed get looked to for these sorts of things because the political process seems to be in such a state of paralysis or just not producing—not able to come up with coherent responses to these problems?
MS. MESTER: Well, I don’t know what the cause is, but I do think that monetary policy has been the go-to policy for a while now. And, you know, there’s probably a lot of reasons for that in terms of, you know, we do know that we need a sustainable fiscal policy and we’re probably not on a sustainable path right now because we have some deficits—looming deficits in the future because of our medical and Social Security and other things.
So again, like, there’s a whole—it’s not just one simple answer that things can’t get done. We need to be thinking about a sustainable fiscal policy that can help us in the short run and the long run. And so this is a hard thing to do. But locally there are things that are going on.
I’m sure you’re aware that the Federal Reserve has a focus on community development efforts across the system, and we all work very carefully with our—or closely with groups within our districts to sort of do the—help them do analysis and help to promote sort of what’s known and what can work and what, you know, is less effective and what’s more effective in sort of addressing some of these programs.
So, you know, this is something that the Fed has been doing for quite a long time. This is not just a new thing during this crisis. We’ve had a longstanding program where we, you know, try to bring the best work and analysis to bear on these issues that affect our communities.
MR. DERBY: Well, this is a political question, but—and I’m not going to ask you to comment on the policies of the candidates, but the rhetoric of the campaign, especially in terms of Donald Trump, where, you know, the economy is—the economy is a wreck. You know, the country is on the wrong track. It’s terrible. Everything is dreadful. We’ve lost everything. We’ve got to get it back.
Does that sort of rhetoric—I mean, because it’s obviously just plastered across every media outlet in the world, does that cause—does that affect the actual course of events in terms of how the economy is performing?
MS. MESTER: I hope that people evaluate the policy programs being put out by any political candidate and sort of make an informed judgment about whether they support those policy programs or not, and then go into the polling booth and vote their conscience of who they want—you know, they think which policies are going to be the right one. And I’m very confident in the American public that, you know, they look through the noise and focus in on the important things.
MR. DERBY: But those kind of comments, do they—do they hurt confidence? Do they affect investment? Do they—
MS. MESTER: Again, I think most people are knowledgeable enough to look at what are the programs, right, that each candidate thinks is the right way to go, and then to base their judgment on that and not, you know, necessarily listen to sound bites or listen to a political ad.
I think people need to focus on what are the policies that are associated with each of the candidates, whether—at every level of government, presidential down to local levels and, you know, assess are those policies that are the right ones, and go into the voting booth and vote that way.
MR. DERBY: So one candidate saying everything is going to hell, that—and consistently saying that—because that’s somewhat unprecedented for a political campaign to have one of the candidates talking in this fashion about the state of the nation. That doesn’t hurt—that doesn’t affect things?
MS. MESTER: Well, again, I can’t speak for the world, you know. I know that when I think about things, I go and I look at sort of what policies are they promulgating and what do I think is going to happen if this person gets in, in terms of where they stand, you know, what do they stand for, and then vote that way.
MR. DERBY: OK.
Well, one question that I wanted to ask you about, financial conditions that we missed, was the dollar issue, because that dollar has been a headwind–
MS. MESTER: Right.
MR. DERBY: —a lot over recent years. And, you know, again, the dollar is, again strengthening. And again, if we are in an extended period of uncertainty, it could remain strong for some time. Does the dollar worry you right now as a longer-term issue?
MS. MESTER: So I think it’s going to be about the rate of appreciation. Will the rate of appreciation continue at the pace that we’d seen earlier? And it hasn’t, if you actually look, even with those swings that we’ve seen recently because—after the Brexit vote, you know, we’ve seen ups and downs. So again, it’s an assessment of, is the rate of appreciation continuing to move up?
No doubt net exports have been a drag on growth, but as the dollar stabilized, you actually saw that the drag has diminished over time too, which one would expect. You know, the latest bout, we’ll have to see how long-lasting it is; you know, whether it means continued increases of the value of the dollar and therefore continued—you know, an increase of a drag on the economy. But remember, exports are like—net exports are, like, 12 percent of the U.S. economy.
So again, you know, the trade impact, yes, it has had an impact, right, but it’s been offset by other strengths, including consumer spending. And so the economy has been growing at 2%—2%-plus. We saw that weakness in the first quarter, but the second—well, firstly, it was less weak than the original estimate suggested. And secondly, there has been a pickup in the second quarter.
So again, right, the economy has been moving in a good direction in terms of growth, employment, and I would say inflation as well. And I think the fundamentals are there to support that.
MR. DERBY: So you had mentioned growth of likely just over 2%. Do you have an expectation for further declines in the unemployment rate?
MS. MESTER: Yes, so I have—my long-run unemployment rate is about 5%. And I would expect to see unemployment, you know, go tick down below that before moving back up over the long run.
MR. DERBY: Well, we’ve already ticked down below 5%.
MS. MESTER: Yeah, yeah, but a little bit—
MR. DERBY: Oh, a little bit further from 4%?
MS. MESTER: I mean, I wouldn’t necessarily expect us to be at 4.7%, because we had that decline in participation rate, right? So the monthly numbers will move around. But, yeah, I would expect continuing improvement on unemployment, right, so we’re undershooting by longer-run value.
MR. DERBY: So just to understand, so we could go below 4.7%, or you think it’s probably going to sort of bounce…I’m just saying by the end of the year, then—
MS. MESTER: Yeah, I would expect some continued decline in the unemployment rate, a little bit, and then moving back up over time.
MR. DERBY: OK. And your outlook for getting to 2% inflation, you know, if things go—if your economic outlook happens—when you think we’re getting there?
MS. MESTER: Oh, in the next two years.
MR. DERBY: And I wanted to switch to some of the reform proposal ideas that have been out there—Andy Levin’s proposal. What do you think about that? Do you think bringing the regional Fed banks fully into the Fed system, you know, as an explicit part of government, taking the bankers off the boards—what’s your response to those ideas?
MS. MESTER: So my view of the system is actually that it was incredibly well-designed. So remember, we had two central banks before the current Fed in this country, right, the First Bank and the Second Bank of the U.S. It happened to be in Philly, where I kind of grew up—my professional growing up took place. You’d walk by them and, you know, you’d have a sense of history, right? They each only lasted 20 years, right? They had 20-year charters and they weren’t renewed.
If you think about the current Fed structure, it was kind of incredibly well-designed, I think, to balance sort of this public sector and private sector representation in terms of sort of making sure that, you know, not only were Wall Street and New York represented, but the rest of the country was represented. So we had the Wall Street versus “Main Street” setup.
And the structure I think has served the country really well for over a hundred years. So I think that you had to take a lesson from that, in that, you know, we have had two other central banks in the U.S. that did not last beyond 20 years, and yet the Fed structure, which is this complicated balancing act, has lasted, right, for over a hundred years. And I take that to heart saying, like, wow, you better be very serious about thinking about how to change that and not just, you know, think that you can make one change and it will somehow fix a problem that I don’t think exists.
I would be very wary of that public sector-private sector—mucking that up, that balance, because I think that’s really effective. I think it’s very good that when I go to the FOMC meeting, I can bring in information from my district, talking to a whole swath of, you know, constituents here about what they’re seeing in the economy. And I make it a point at every meeting to bring that in, because I know that’s one of the values of the current Fed structure is that we’ve got regional presidents coming in and bringing that perspective.
MR. DERBY: But how would that change—I mean, if the regional banks were—because I don’t think Levin’s proposal called for ending the regional Fed banks. It was just that they would not be owned, in the current structure, by—you know, by stock in—
MS. MESTER: No, but they would become—the way I read it is they would become agencies, right? And so there would be much more power in Washington, right, than is today. So you’re concentrating power, right, in the political—in a more political realm. And I think that’s what I would be very wary about. I don’t think it would be the same at all. I mean, Federal Reserve Banks are overseen by the Board of Governors, but we have our own views on monetary policy. We have our own research staffs that support us in terms of our ability to analyze the economy. And I think that’s incredibly valuable.
Yes, the structure is one of a corporate structure as opposed to this federal agency structure. And yes, the banks have stock. But that’s not owning the Fed in the sense of a corporation, right? It’s making sure that there’s representation from the district as part of the Fed structure. And I think that private-sector involvement, again, is very important.
You know, bankers do not influence any decision that’s being made in the Fed on supervision, right? I know that’s one of the arguments, is that is there a conflict of interest because you have bankers on your board and you have supervisory responsibilities? And they’re not involved in that at all.
MR. DERBY: And the supervision’s run out of Washington.
MS. MESTER: Right, but delegated back to the Reserve banks. So in that sense you could imagine that—I think the people who are critical of the structure worry about a conflict between, you know, bankers sitting on the boards of the Reserve banks, and yet the Reserve banks going in and examining banks and supervising. But they’re not involved in any of those kind of, you know, activities at all.
But they do bring a perspective of what’s happening in the economy. Certainly, you know, as we’ve seen, the financial system is very important for how the economy evolves. So they bring that expertise. You know, there are heads of companies that are important in the districts in terms of, you know, being corporate citizens. And so, you know, I’m very proud that Beth Mooney sits on our board because she’s been—brings a lot of value to our discussions about the economy, economic conditions, and you know, what she’s seeing out there from her banker’s perspective in terms of her clients, et cetera.
But we have representation for other things other than banks as well. So again, you know, if you look at the Cleveland and Cincinnati and Pittsburgh boards, right, we try to pick over a very vast array of constituents, right? We have a labor representative. You know, we try to get the consumer side of things, Procter & Gamble. So there’s a lot of different areas that we’re trying to makes sure that we have that broad perspective of what’s going on in our district, and that our makeup of our board of directors is reflective of our district. And you know, the Fed has been, you know, working on that for quite a while in terms of being cognizant of this issue.
MR. DERBY: So you don’t—I mean, you fully support continuing to have bankers on the boards?
MS. MESTER: I think there’s not a problem to be fixed, frankly. I think there may be an appearance issue, but maybe that’s because we haven’t explained as well as we should, right, what value we get out of having this structure. But I think it’s basically one of this private-public partnership; independence, you know, not only being D.C. and New York, but also having the regional representation; and the fact that the board meetings of the institution, right, are not conflated with the examination/supervision, which as you rightly pointed out is delegated to the Reserve banks. So again, those decisions are made in D.C.
So again, there may be an appearance issue, but I do not believe there’s a conflict of interest. And I don’t think the structure should be changed, frankly, because I think the structure has served the country very well over the last 100-plus years.
MR. DERBY: So the other critique was—and I guess you’ve alluded to it somewhat—but the diversity issue, that—and I mean, this is about boards, but this is about, you know, the makeup of the regional bank presidents and governors, I mean, it being heavily tilted towards white men and people from—who are generally economists, coming from that. So I mean, there’s only a small, little group of people who were bankers, and some people don’t even like the fact that there are people with financial backgrounds on there, but I mean, that’s how the makeup is. And so the racial diversity, the gender issues, do you—do you think more can be done there or more should be done there?
MS. MESTER: I think we can always do better of trying to stay focused on diversity. Are we representative of the public that we serve, right? And so we should always be very cognizant of that. And certainly I do support the efforts going on to do that. We’re cognizant of that. We’ve been working on, you know, making sure that we have not only diversity on our board of directors, but you know, for the employees at the bank as well, because I believe that different perspectives, actually, you end up with better work. So just like I believe the FOMC works well because we do have different perspectives, I think the same thing applies in the workplace and, you know, the processes by which, you know, presidential candidates are selected. I do think we should be thinking about looking far and wide for the best-quality candidates that we can get for these positions. And I would expect that there would be a diverse slate because we know there’s very good diverse candidates for most jobs. And I would see no reason to think that we couldn’t do—you know, continue to try to seek the best candidates we can, keeping in mind that diversity is a—adds value to the operation of an institution.
MR. DERBY: Well, I’ll raise a point that (former Minneapolis Fed President) Narayana Kocherlakota had made on his blog about—I know it was a—it wasn’t like a direct jab or anything, but talking about the—he connected the lack of African-Americans in leadership roles at the Fed to talking about, say, the unemployment rate of black Americans, and just the idea that because the racial balance is what it is, it’s caused the Fed to maybe not take full attention or full account of the employment problems or particular problems of a minority group. Do you—I mean, I guess it’s a hard question to answer, but would the Fed benefit by having more of that sort of diversity in the leadership ranks?
MS. MESTER: I mean, maybe that would be—I guess I would go back to the premise of the—of the quote, which is not being fully cognizant of, you know, the data or the—you know, what the data across gender—and I guess that’s not true. I mean, we have lots of labor economists in the Federal Reserve System, and many of them look at disaggregated data by gender.
I think the issue is, is monetary policy the tool that can really address differences between, right, unemployment rates by gender, by race, by ethnicity, right? And so, you know, we certainly care about, you know, those issues. But again, as a policy focus, there’s really not—other than bringing down the average unemployment rate and therefore bringing all of them coming down, I don’t think monetary—and this is what we talked about before—I don’t think monetary policy can do that much to address those kind of issues. That doesn’t mean those are not important issues. Those are very important issues for the health of the country in the longer run, over the medium run. But again, as a monetary policy maker, right, you don’t have a tool that can really fix that problem.
I think our community development area within the Federal Reserve certainly is attuned to that. It certainly understands that different neighborhoods are affected differently by different kinds of policies. You know, one of the issues that have been discussed about the zero-interest-rate policy is that there’s a differential impact on savers and borrowers, and that means there’s a differential impact by demographics, right—age, you know, older workers and—or older retirees, even, and younger ones who depend on fixed income.
So you know, I think these issues have all been there. Monetary policy always acts through that channel, right? But I think that the differential impact across groups has been exacerbated by the length of, right, the—and the depth of the Great Recession, right, and also the slow recovery. And so, you know, we’ve held interest rates very low for very long, and so these kind of differential impacts have been illuminated, right? It’s not a new thing in the sense that monetary policy is acting in a new way, it’s just that interest rates have been very low for a very long time, and so these differentials are showing themselves up.
In terms of the unemployment rate, it’s the same thing. Unemployment went up to 10% overall, but much higher for the categories where they always have been higher, so African-American unemployment rates went up more. Those differentials are now, you know—I mean, all the rates have come down, but the differentials remain. And so that’s, I think, a(n) issue that the country needs to take on. I just don’t believe that monetary policy is effective against that.
So again, it’s going back to is it a lack of attention to it by monetary policy makers, or is it knowledge and understanding that this tool, right—the best that we can do with policy is to get the country back on our goals of price stability and maximum employment, and then to address these kinds of differentials in terms of income inequality or differential of unemployment rates by ethnicity, you know, gender. There are other policies that need to be brought to bear.
I mean, I am concerned that—you know, technological change and globalization raise or can raise living standards, but it’s also important that people can get trained to take on the jobs that will be in that workforce. And so I have some concern that, you know, if we don’t invest in that human capital, right, that we may not be able to capitalize on some of that—you know, on some of the benefits of those things. And so I do have some concern about that.
MR. DERBY: It all just comes back to that issue of, like, monetary policy is a blunt tool and can’t really target the fortunes of one particular group. It’s targeting national aggregates, and–
MS. MESTER: Right, right. Yeah, so the best we can do is try to support the economy and, you know, promote our monetary policy goals. But that doesn’t mean that we don’t think these other things are important policy issues, it’s just not monetary policy.
MR. DERBY: OK. Well, is there anything that you wanted to put out there that I didn’t ask you about? Any issues that you think aren’t being discussed enough or any just sort of general point you want to make about where we are right now?
MS. MESTER: I mean, the main point, I think, is that, look, we’re all going to come in to the FOMC meeting in July and all the ones subsequently, and we’re going to do the best we can of assessing, right, current conditions, what they imply about, right, the future in terms of the medium-run outlook. And then, based on that and the risks around that, we’ll set the policy that we think is appropriate. And there will be differences of opinion around that table, but that’s OK because we’ll come to a consensus view on where policy should be. And that’s, I think, the benefit of having the structure that we have at the Fed, is it allows for that kind of diversity of views, which I think ultimately leads to, you know, good policy.
By
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NYC students rally for more guidance counselors, fewer cops
NYC students rally for more guidance counselors, fewer cops
City students called for more guidance counselors and fewer police in public schools at a spirited rally on the steps...
City students called for more guidance counselors and fewer police in public schools at a spirited rally on the steps of City Hall Wednesday. The protest organized by the student-led Urban Youth Collaborative drew students from across the city. Protest leaders said the rally was organized in response to data released by the city Friday showing a 21% spike in students suspensions.
Read the full article here.
A Call to Action From NMAC & Housing Works
A Call to Action From NMAC & Housing Works
People in the movement might be surprised by a joint letter from Charles King of Housing Works and me, but these are...
People in the movement might be surprised by a joint letter from Charles King of Housing Works and me, but these are not ordinary times. NMAC is writing this letter to invite constituents at this year’s United States Conference on AIDS to join Housing Works efforts on Wednesday, September 6, to greet Congress on its return from summer recess with a rally for the care we need to survive—sign up here!
These are confusing times with no clear roadmap. Since NMAC is hosting the HIV/STD Action Dayon the same day, we want everyone to be aware of our mutual support and collective goal to not just save the Affordable Care Act, but to also strengthen our vision of ending AIDS as an epidemic. This can only happen when affordable health care becomes a human right for everyone.
Read the full article here.
Por fin la Fed toma en cuenta disparidades
Por fin la Fed toma en cuenta disparidades
Hace un año, la Reserva Federal, la institución económica más importante del país mantuvo la posición de que no había...
Hace un año, la Reserva Federal, la institución económica más importante del país mantuvo la posición de que no había nada qué podría hacer sobre las disparidades económicas entre grupos étnicos. Recientemente, la Fed cambió por completo su posición. Durante la última audiencia Humphrey Hawkins Janet Yellen, Presidenta de la Fed, cambió su narrativa al reconocer las disparidades en el desempleo e ingresos de comunidades afroamericanas y latinas en comparación a las comunidades blancas. Esta fue la primera vez que la Presidenta Yellen incluyó estas estadísticas en su informe al Congreso.
A primera vista esto puede no parecer gran cosa, pero lo es. La Fed nunca antes ha abordado las disparidades raciales en el desempleo. Antes estas estadísticas no eran ni siquiera parte del informe o de la conversation. En la audiencia Humphrey Hawkins del año pasado Janet Yellen dijo que no había nada que pudiera hacer para cerrar las brechas raciales en el desempleo e ingresos.
Al incluir esas estadísticas Yellen está mostrando que por primera vez las disparidades raciales se tomarán en cuenta cuando la Fed tome decisiones sobre cómo manejar la economía. Esto realmente es un gran cambio. De acuerdo con el Wall Street Journal, hay “un reconocimiento creciente dentro de la Fed de que las disparidades raciales en la economía son cada vez más pronunciadas y que hay un papel para la política monetaria a la hora de disminuir esas brechas.”
Este gran cambio no se vino a dar solo, fue resultado en gran parte de críticas de activistas de la coalición Fed Up y miembros del Congreso. La coalición Fed Up es formada por miembros de la clase obrera a través de el país que unieron sus voces para elevar el tema de la desigualdad económica en comunidades de bajos ingresos y comunidades de color. El público asume que la Fed no se puede modificar, pero los activistas de la coalición Fed Up están demostrando que si es posible. Este cambio en la política y la práctica de la Fed no hubiera sido posible sin la presión constante del pueblo exigiendo ser escuchado y exigiendo que sus condiciones económicas no sean ignoradas. Este es un ejemplo tangible de que en verdad la unión hace la fuerza.
Yo he estado involucrado en la campaña FED Up desde el inicio porque nuestra comunidades, comunidades de color y de bajos ingresos, necesitan un mejor estándar de vida con más y mejores oportunidades de empleo. A través de nuestros esfuerzos la conversación por fin nos incluye.
Pero el hecho de que la Presidenta Yellen haya reconocido y mencionado la desigualdad económica entre grupos étnicos no es suficiente. Si es un buen primer paso, pero no la meta. Comunidades de color y de bajos ingresos por todo el país necesita más que palabras, necesitan acción!
Durante la audiencia Janet Yellen habló de programas de empleo diseñadas para minorías, y eso es importante, pero no dio el sentido de que estos programas podrían implementarse a una escala que tendría un impacto significativo sobre las disparidades económicas para millones de afroamericanos y latinos.
La mejor y más importante forma en que Janet Yellen puede cumplir con su compromiso de cerrar las disparidades económicas entre grupos étnicos es simple, implementar políticas monetarias que mantengan el mercado de trabajo lo más abierto posible. Esto le dará una oportunidad a comunidades afroamericanas y latinas de tener más puestos de trabajo y mejores salarios.
Es el resultado de años de lucha por la campaña Fed Up que la Fed se ha comprometido a abordar las disparidades raciales en el desempleo e ingresos. Ahora nos toca a todos nosotros asegurarnos que Janet Yellen se haga responsable de mantener los mercados laborales abiertos para darnos la oportunidad de conseguir más puestos de trabajo y salarios con los cuáles podríamos mantener a nuestras familias!
(Amador Rivas es miembro de Se Hace Camino Nueva York, socio del Centro para la Democracia Popular)
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The Government Should Guarantee Everyone a Good Job
The Government Should Guarantee Everyone a Good Job
Progressives have begun to dream more boldly. We have graduated from a public option to single payer. From lower...
Progressives have begun to dream more boldly. We have graduated from a public option to single payer. From lower sentences to eliminating cash bail. From motor-voter to automatic-voter registration. From affordable to free college. And from a $15 minimum wage to guaranteed good jobs for all.
Read the full article here.
Scaffold Law Debate Heats Up Over Dueling Reports on Safety and Costs
Legislative Gazetter - April 21, 2014, by Matthew Dondiego - A new report released last Thursday by a pro-labor, pro-...
Legislative Gazetter - April 21, 2014, by Matthew Dondiego - A new report released last Thursday by a pro-labor, pro-immigrant rights advocacy group criticizes the construction industry for using what they call misleading figures and cherry picking data to lobby against the state's controversial "scaffold law."
The scaffold law is a century-old law in place to protect worker's rights. Under the law, contractors and property owners serving as contractors are responsible for providing a safe work environment for their employees or become liable for any on-site injuries and accidents.
Opponents of the law point out that contractors are fully liable for workers' injuries even if it is determined the worker is at fault. Opponents say it is outdated and causes construction costs to rise due to the increased costs of insurance premiums. Supporters of the law say it provides common sense protection for workers performing a dangerous job and maintain that contractors are not held liable in court if proper safety precautions are in place.
The new report, titled Fatally Flawed and released by the Center for Popular Democracy, which is supported financially by the New York State Trial Lawyers Association and labor unions, is a scathing criticism of a Rockefeller Institute study — which is frequently referenced by the construction industry — that concluded the scaffold law resulted in an additional 667 work site injuries and adds about $3 billion in additional costs to construction projects in New York state each year.
According to last week's report, the oft-cited Rockefeller Institute study is "fundamentally biased" and calls the New York Civil Justice Institute, which paid $82,800 to commission the Rockefeller study, "a poorly-disguised front group" for the construction industry aligned Lawsuit Reform Alliance of New York. According to the report, the Lawsuit Reform Alliance of New York and the New York Civil Justice Institute share the same address, 19 Dove St, Suite 201, Albany, N.Y., and the same telephone and fax numbers.
"This [Rockefeller Institute] study was bought and paid for by the construction industry," Josie Duffy, a staff attorney for the Center for Popular Democracy. "This is a direct result of people who do not like the scaffold law for business reasons, paying for this report to be released."
On the claim that the scaffold law contributed an additional 667 injuries, the report says the Rockefeller Institute "confuses correlation with causation."
This claim, according the Center for Popular Democracy, is based on worker injury rates in "sub-sectors and non-construction industries," such as warehouse work, transportation, roofing, residential building construction, manufacturing, wholesale trade and utilities industries, and are compared to the rest of the nation.
"The authors assert that these differences are greater in New York and attribute these greater differences entirely to the scaffold law," the new report reads. "There is simply no basis to conclude that the scaffold law is the cause of these differences. Indeed, the authors provide no justification for comparing injury rates in construction with injury rates in less hazardous industries, or using those differences as a proxy for the impact of the scaffold law."
Duffy bluntly says that the scaffold law does not cause an increase in workplace accidents. She says the Rockefeller Institute's study, which was released in February, lacks factual evidence that the law makes work sites more dangerous and "that number is coming from nowhere."
"To me, that is the most egregious part of this whole report," Duffy said.
Despite the strong words used in the report and by Duffy, Tom Stebbins, executive director of the Lawsuit Reform Alliance of New York, says that the Rockefeller report "conclusively" found the law made construction sites more dangerous for workers.
He said that absolute liability for contractors creates "perverse incentives" for workers.
"Workers are not incentivized because they are never held responsible and contractors are not incentivized because they are guilty in nearly every circumstance," Stebbins said. "Only by apportioning liability to fault, as is done in every other state and every other part of our civil justice system, can we maintain balance and improve safety."
According to Stebbins, the report released by the Center for Popular Democracy last week is a "political hit piece, with no statistical merit or actual research of any kind. They cannot get researchers to back up their opinions, because the facts do not support the scaffold law."
Stebbins argues that absolute liability causes the insurance markets to treat sites with sterling safety records the same as companies with less stringent safety precautions. Opponents of the scaffold law say that absolute liability holds the company liable for the worker injuries regardless of who is actually found to be at fault.
Duffy however, said that companies are not automatically found to be liable for injuries sustained by workers on construction sites and are typically safe from injury-related costs so long as they had the proper safety precautions in place.
"What absolute liability means is that you have to pay for the costs of the injuries … and that's only going to happen if you're breaking the law," she explained. "What this law says is there has to be some level of protection for workers."
According to Duffy, under the law companies still hold the right to argue their case in court and they are not automatically found responsible for every injury.
"It's important that employers get to have their voices heard in law, I support that this law allows people to get their voices heard on both sides and that's a very, very real protection," she said "Nothing happens automatically in this law and you can't even be taken to court unless your breaking the law in the first place."
The report also criticizes the Rockefeller Institute for failing to take into consideration certain conditions in New York that may affect the injury rates in the state. Such measures include New York generally has more high-level construction works which may drive up injury rates and New York construction workers are more likely to be union workers and therefore are more likely to report injuries. According to the report, Texas has one of the lowest construction injury rates yet is among the highest in construction fatality rates.
According to the report, "Such low-injury-rate states have artificially suppressed the US injury rate, which the paper nonetheless compares to the New York rate."
"This is a law that protects construction workers. Construction workers are doing a really difficult job and they're doing it every day and they are growing our economy," Duffy said. "Construction workers are literally the bread and butter of what makes New York City, New York City … and this is a state of construction."
Assemblyman Francisco Moya, a Democrat from Queens, said the Center for Popular Democracy's report "injected some truth into the politically-charged debate surrounding the scaffold law."
"Many untruths have been lobbed at the scaffold law in an attempt to dismantle it. This report makes clear that those untruths have unfortunately been crafted by parties who have a financial interest in watering down workplace protections," Moya, a staunch supporter of the law, said in an e-mail. "When it comes to life and death decisions about workplace safety, there's no room for politics. It has to be about facts. And the fact is that the Scaffold Law protects workers. That's the real bottom line."
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Lacker to Tell Congress the Fed Doesn’t Need an Overhaul
Lacker to Tell Congress the Fed Doesn’t Need an Overhaul
Federal Reserve Bank of Richmond President Jeffrey Lacker is set to tell a congressional panel Wednesday the U.S....
Federal Reserve Bank of Richmond President Jeffrey Lacker is set to tell a congressional panel Wednesday the U.S. central bank’s structure is effective, and that he is reluctant to see it altered in any major way.
In an interview with The Wall Street Journal, Mr. Lacker said the U.S. central bank—with its Washington-based board of governors and 12 quasiprivate, quasigovernmental regional banks across the country—“works well.”
The Federal Reserve, created more than a century ago, might seem like “an archaic structure, but the choices and trade-offs they were facing then are still relevant choices and trade-offs now. Our federated structure reflected a desire to ensure that the diversity of views were reflected in monetary policy,” he said.
Mr. Lacker spoke to the Journal on Thursday in his office overlooking the James River, ahead of speech in which he argued the Fed was increasingly likely to face trouble if it doesn’t raise short-term interest rates soon.
The veteran central banker—he is the longest-serving regional Fed bank president—and Kansas City Fed President Esther George are scheduled to testify Wednesday before the House Committee on Financial Services’ Monetary Policy and Trade subcommittee. They will discuss the structure of their banks and “how it relates to the conduct of monetary policy and economic performance.”
The Fed in recent years has faced critics from the right and left who would like to change the way the central bank operates. Some Republican lawmakers, for example, want to give Congress more scrutiny over the Fed’s interest-rate-setting policy actions via formal government audits, something central bankers have long argued would make policy-making more political and ultimately less effective.
Some left-leaning activists and Democrats, including the campaign of presidential nominee Hillary Clinton, have called for bankers to be removed from the boards overseeing the regional Fed banks.
Members of the Center for Popular Democracy’s Fed Up campaign, working with a former top Fed staffer, have gone further. They have called for the regional Fed banks, which are technically owned by private banks via nonvoting shares, to be moved fully into government. The group also has sought a more open process to select bank presidents, and to take stock of their performance once they are on the job.
“I completely understand the heightened attention the Fed has gotten” in light of the dramatic actions it took over the course of the financial crisis and its aftermath, Mr. Lacker said. “We’re America’s central bank. And I think it’s a discussion worth having.”
Some of the criticism of the Fed owes to misunderstandings, Mr. Lacker said. But he added, “I’d agree we could do a better job of explaining our governance.”
By and large, Mr. Lacker said the current setup has proved to be the best in terms of setting policy and achieving the independence most economists believe is critical for effective central banking, a view shared by other regional Fed bank chiefs.
He said the regional banks, part-private and part-public organizations, are afforded independence to provide views protected from political interference. Turning the regional Fed banks into fully governmental institutions would compromise that and relieve the board of governors of a vital counterweight, Mr. Lacker said.
“Preserving that diversity of views, preserving the independence of the reserve bank president’s role in monetary policy, is an exceptionally high value,” he said.
Mr. Lacker also said the regional Fed banks’ boards of directors, drawn from a mix of local business and community leaders, as well as bankers, provide insight into local economic developments. These directors also offer operational insight to the central bank, a large service provider to financial institutions on a variety of fronts, he said.
The U.S. central bank, which is a major financial industry regulator, has long faced criticism because bankers serve on the boards of directors of the regional Fed banks. Critics say it is a conflict of interest because it allows banks to oversee their supervisor. Fed officials reject this view, saying that its regulatory activities, while carried out largely by the regional banks, are directed out of Washington.
“I think we all appreciate the—you know, I think [former Treasury Secretary and New York Fed President] Tim Geithner called it the optics issue, or optics problem” of the ownership structure and board composition, Mr. Lacker said. “As a practical matter, it’s not an issue.”
Mr. Lacker said that private bank ownership of the regional Fed banks isn’t like corporate ownership because the banks’ shares don’t have voting rights. He also said the regional boards have “a classic American governance role” and he rejected the idea that there would be any conflicts of interest faced by the board members.
Mr. Lacker said he welcomes meeting with Fed critics.
Many are activists “trying very hard to do what they can to improve lives. And you know, you can’t help but come away from conversations like that with a deep appreciation of the struggles and challenges that many of our—you know, many people in our country face,” Mr. Lacker said. He added, “I commend them for their interest in us and the willingness to engage in conversation with us.”
By Michael S. Derby
Source
Group of Lawmakers Says Fed Fails to Diversify Leadership
Group of Lawmakers Says Fed Fails to Diversify Leadership
A group of Democratic senators and House members complained Thursday that the Federal Reserve has failed to meet its...
A group of Democratic senators and House members complained Thursday that the Federal Reserve has failed to meet its obligation to build a diverse leadership that includes enough women and minorities, and it wants Chair Janet Yellen to remedy the issue.
The lawmakers said a more inclusive leadership that properly reflects gender, race, ethnicity, occupation and economic background is needed to ensure fairness in Fed policy.
The Democratic lawmakers — 11 senators and 116 in the House — expressed their concerns in a letter to Yellen. The Fed's leadership "remains overwhelmingly and disproportionately white and male," they wrote.
In its search for directors who oversee the Fed's 12 regional banks for terms next year, the Fed's board of governors should cast a wider net for African American, Latino and female candidates, as well as qualified people from labor, consumer and community organizations, the lawmakers told Yellen.
A Fed spokesman, David Skidmore, responded that the central bank is "committed to fostering diversity — by race, ethnicity, gender and professional background — within its leadership ranks."
"We have focused considerable attention in recent years on recruiting directors with diverse backgrounds and experiences," Skidmore said. "By law, we consider the interests of agriculture, commerce, industry, services, labor and consumers. We also are aiming to increase ethnic and gender diversity."
The senators signing the letter include Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont, who is challenging front-runner Hillary Clinton for the Democratic presidential nomination. Warren and Sanders are the most outspoken Democratic critics on economic and financial issues.
The 116 House members, representing more than half the 188 Democrats in the House, are led by Rep. John Conyers of Michigan, the senior Democrat on the Judiciary Committee.
The letter cites data from the Center for Popular Democracy, a liberal advocacy group. The data indicates that 83 percent of the directors who supervise the Fed's regional banks are white and that nearly three-quarters of them are men. All the members of the Fed's committee that sets interest-rate policy are white, and 60 percent are men.
The Fed counters that the proportion of minority directors on the boards of its regional banks and their branches has risen from 16 percent in 2010 to 24 percent this year, and that the proportion of female directors has increased from 23 percent to 30 percent. Forty-six percent of the directors represent diversity in race and-or gender, the Fed said.
"We are striving to continue that progress," Skidmore said.
The data cited in the congressional letter do not include directors of the regional banks' branches, only the banks themselves.
On Thursday, Clinton's campaign said she shares the lawmakers' concerns. A spokesman, Jesse Ferguson, said Clinton thinks "the Fed needs to be more representative of America as a whole." She also believes there no longer should be three private-sector bankers sitting on each regional Fed bank board, Ferguson said.
That change would require new legislation.
Yellen, the first woman to lead the central bank in its 100-plus-year history, has stressed in her public statements the importance of overcoming economic inequality.
The five current Fed governors are white. Two, including Yellen, are women.
By MARCY GORDON
Source
Fed Up Coalition comes to Jackson to join the conversation on Economic Policy
People in green shirts stating “Let Our Wages Grow” and “Who’s Recovery?” are all over the main lobby and outdoor areas...
People in green shirts stating “Let Our Wages Grow” and “Who’s Recovery?” are all over the main lobby and outdoor areas of the lodge.
As officials meet for the Economic Policy Symposium, the Fed Up Coalition consisting of workers, economists, and allies are holding a conference simultaneously to discuss ways to foster full employment, higher wages and racial equality.
Ed Donaldson, who is with the San Francisco Alliance of Californians for Community Emplowerment is here to join the conversation on interest rates, unemployment and how the decisions of the Federal Reserve impact Americans.
“We are here exercising our democracy,” said Donaldson. “Monetary policy and the activities of the Federal Reserve are so very important.”
Between 75-100 representatives for the Fed Up Coalition from all over U.S. are at the Jackson Lake Lodge to voice their opinion.
“We have people here who represent every Federal Reserve district across the country. Many have met with Federal Reserve presidents in their area, which has been a very interesting dialog,” he added.
According to Donaldson, instead of looking at abstract data, it is important to have people who can tell you first hand how the economy is impacting them.
“I don’t think numbers tell the whole story about what’s going on. We have a high number of long term unemployed people and a high rate of underemployment. The Federal Reserve assisted Wall Street in getting them out of trouble and we think it’s only democratic that they begin to look at main street and look at ways they can help,” he added.
The Fed Up Coalition’s voice is beginning to be heard. Donaldson mentioned that the Federal Reserve is creating a Community Advisory Counsel, where they will select 15 people to help get insight from the ground.
“I am happy to be here. I think in many ways this is historic,” said Donaldson. “We sort of butted into the conversation, but I think it is far too important of an issue to let this conversation take place and not ask questions.”
The 2015 Economic Symposium’s central theme is “Inflation Dynamics and Monetary Policy,” and takes place August 27-29 at the Jackson Lake Lodge in Grand Teton National Park.
Source: Buckrail
Thomas DiNapoli urged to stop investments that hurt P.R.
Activist groups are asking state Controller Thomas DiNapoli to halt investments in two private equity firms they blame...
Activist groups are asking state Controller Thomas DiNapoli to halt investments in two private equity firms they blame for worsening the foreclosure crisis in Puerto Rico.
In a letter to DiNapoli, the anti-hedge fund group Hedge Clippers and other organizations say the state Common Retirement Fund should make no new investments in the Blackstone Group and TPG Capital.
Read the full article here.
3 days ago
3 days ago