An emerg­ing pri­or­ity for Pow­ell Fed: The plight of the poor

The Saratogian (Saratoga, NY) - - FRONT PAGE - By Christo­pher Ru­gaber AP Eco­nom­ics Writer

WASH­ING­TON » Tes­ti­fy­ing to Congress this month, Fed­eral Re­serve Chair Jerome Pow­ell sent a mes­sage sel­dom heard from his pre­de­ces­sors: That the Fed should con­sider the strug­gles of the low­est­in­come Amer­i­cans in set­ting its in­ter­est-rate poli­cies.

“We want to re­mind our­selves,” Pow­ell said, “that pros­per­ity isn’t ex­pe­ri­enced in all com­mu­ni­ties. Low- and mod­er­ate-in­come com­mu­ni­ties in many cases are just start­ing to feel the ben­e­fits of this ex­pan­sion.”

It wasn’t the first time Pow­ell had sounded that theme of late. At a news con­fer­ence in July, he noted that pay had be­gun ris­ing fastest for lower-skilled work­ers, a shift from ear­lier in the eco­nomic ex­pan­sion.

“This un­der­scores for us the im­por­tance of sus­tain­ing the ex­pan­sion so that the strong job mar­ket reaches more of those left be­hind,” he said.

The no­tion that the Fed should

try to sus­tain the ex­pan­sion to help the most dis­ad­van­taged peo­ple might seem self-ev­i­dent. But through­out its his­tory, the Fed, whose man­date is to sta­bi­lize prices and max­i­mize em­ploy­ment, has rarely ex­pressed the need to suit its poli­cies to ben­e­fit the least for­tu­nate.

With the econ­omy ex­pand­ing for an 11th year and un­em­ploy­ment near a 50-year low, most of Pow­ell’s pre­de­ces­sors would have fo­cused on the threat of high in­fla­tion and the pos­si­bil­ity of rais­ing rates to fore­stall it. The pre­vail­ing be­lief has been that ad­dress­ing eco­nomic in­equal­ity or poverty is the purview of Congress, not the Fed.

Pow­ell still says the Fed’s main fo­cus is the health of the job mar­ket and the sta­bil­ity of prices. But as he nears the end of his sec­ond year as chair­man, he has in­creas­ingly opened the door to the idea that the Fed can also lift up those who still strug­gle years af­ter an eco­nomic ex­pan­sion has boosted the for­tunes of most Amer­i­cans.

One driver of that change is an out­reach ef­fort the Fed launched a year ago as part of a re­view of its fi­nan­cial tools and strat­egy. The out­reach has in­cluded 14 meetings be­tween Fed of­fi­cials and rep­re­sen­ta­tives from la­bor unions, ed­u­ca­tors and com­mu­nity de­vel­op­ment groups. Many par­tic­i­pants have told Fed of­fi­cials that de­spite en­trenched poverty in some ar­eas of the coun­try, more dis­ad­van­taged Amer­i­cans are fi­nally find­ing jobs and mak­ing eco­nomic progress.

On Mon­day, in a work­ing-class neigh­bor­hood in East Hart­ford, Con­necti­cut, Pow­ell and Eric Rosen­gren, pres­i­dent of Bos­ton Fed­eral Re­serve Bank, will visit a ca­reer de­vel­op­ment pro­gram and meet with res­i­dents to get a closer look at their chal­lenges.

Back in Au­gust, at an an­nual gath­er­ing of cen­tral bankers in Jack­son Hole, Wy­oming, Pow­ell be­gan his speech by ob­serv­ing how the U.S. eco­nomic ex­pan­sion — the long­est on record — was fi­nally ben­e­fit­ing work­ing peo­ple, through higher pay and more plen­ti­ful job op­por­tu­ni­ties.

His speech took some econ­o­mists by sur­prise.

“It is al­most in­con­ceiv­able that Pow­ell’s pre­de­ces­sors would have be­gun an im­por­tant talk on mon­e­tary pol­icy this way,” Dean Baker, an econ­o­mist at the pro­gres­sive Cen­ter for Eco­nomic and Pol­icy Re­search, later wrote in a col­umn that called Pow­ell a “La­bor Day hero.”

“Pow­ell has ex­plic­itly made the plight of the poor and work­ing class part of the Fed’s agenda,” Baker wrote.

Janet Yellen, Pow­ell’s im­me­di­ate pre­de­ces­sor, had be­gun to raise these is­sues dur­ing her ten­ure. At the 2016 Jack­son Hole con­fer­ence, some of Yellen’s deputies met with mem­bers of “Fed Up,” an or­ga­ni­za­tion that ad­vo­cates for low rates to sup­port eco­nomic growth and hir­ing.

But Stephanie Aaron­son, di­rec­tor of eco­nomic stud­ies at the Brook­ings In­sti­tu­tion and a for­mer Fed econ­o­mist, said Pow­ell has linked Fed pol­icy more ex­plic­itly to is­sues like in­equal­ity. Ben Ber­nanke, who pre­ceded Yellen as Fed chair, spoke about eco­nomic in­equal­ity, but his stated reme­dies were in ar­eas out­side the Fed’s reach, like ed­u­ca­tion and job train­ing.

And in the past when Fed of­fi­cials would meet with com­mu­nity groups, they tended to dis­cuss is­sues that only in­di­rectly help the eco­nom­i­cally dis­ad­van­taged — fair­ness in bank lend­ing, for ex­am­ple.

The Fed’s cur­rent out­reach “is ac­tu­ally about mon­e­tary pol­icy — and that does make it really dif­fer­ent from the usual types of in­ter­ac­tions that the Fed has with com­mu­nity groups,” Aaron­son said.

Aaron­son co-au­thored re­search this spring that found that a per­sis­tently low un­em­ploy­ment rate can sig­nif­i­cantly nar­row em­ploy­ment gaps be­tween whites and African-Amer­i­cans and Lati­nos. Her re­search also found that the nar­row­ing of that gap ac­cel­er­ated as un­em­ploy­ment fell fur­ther.

J.W. Ma­son, an as­sis­tant pro­fes­sor at John Jay Col­lege, said that Fed of­fi­cials haven’t of­ten ac­knowl­edged that their poli­cies have vary­ing con­se­quences for dif­fer­ent so­cioe­co­nomic groups. Many econ­o­mists have long ar­gued, for ex­am­ple, that when the Fed raises rates to try to stop prices from ac­cel­er­at­ing, it risks hin­der­ing the kind of ro­bust job mar­ket that dis­pro­por­tion­ately helps dis­ad­van­taged work­ers.

“It’s not just about the whole econ­omy,” Ma­son said. “It’s about who’s ben­e­fit­ing. It’s al­ways been true, but peo­ple didn’t want to ac­knowl­edge it.”

In some ways, Pow­ell has more flex­i­bil­ity than most of his pre­de­ces­sors to keep rates low. Low in­fla­tion makes it eas­ier to hold down bor­row­ing costs. And the po­lit­i­cal en­vi­ron­ment has changed. Ber­nanke and Yellen were fre­quently crit­i­cized by Repub­li­cans in Congress for their low-rate poli­cies. But with Pres­i­dent Don­ald Trump reg­u­larly at­tack­ing Pow­ell for not cut­ting rates faster, the chair­man faces lit­tle pres­sure from Capi­tol Hill to re­verse course.

David Wil­cox, a se­nior fel­low at the Peter­son In­sti­tute for In­ter­na­tional Eco­nom­ics and a for­mer top Fed staffer, noted that as Fed chair­man, Alan Greenspan took a fa­mous risk in the late 1990s: His be­lief was that an ac­cel­er­a­tion in worker pro­duc­tiv­ity would al­low him to keep rates low and let un­em­ploy­ment fall steeply. Most econ­o­mists be­lieve the risk paid off, as un­em­ploy­ment fell below 4% without spurring in­fla­tion.

But Greenspan “never ar­tic­u­lated any par­tic­u­lar con­cern about reach­ing into com­mu­ni­ties that had been pre­vi­ously hard hit,” Wil­cox said. “That was not a part of Greenspan’s rhetoric.”


FILE - In this Nov. 14 photo, Fed­eral Re­serve Board Chair Jerome Pow­ell tes­ti­fies to the House Bud­get Com­mit­tee on Capi­tol Hill in Wash­ing­ton.

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