Federal Reserve Bank of Atlanta President Raphael Bostic sat down for an interview with The Wall Street Journal's Eric Morath on Friday, Oct. 6, 2017 on the sidelines of a conference about workforce issues in Austin, Texas. They discussed the labor market, inflation and the impact of recent hurricanes on the economy, among other issues. Here is a transcript of the exchange, lightly edited for length and clarity.
Q: Is the Fed's approach to workforce development different in times of low unemployment? Is now the time to address structural issues?
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BOSTIC: We're in a period where there is a lot of turmoil in markets. People are seeing the accelerated pace at which the economy is changing. They're seeing new jobs appear and old jobs disappear in ways that are making them nervous. What we are doing through this (the Fed's workforce development efforts) is really starting to think at a broad, institutional level: Are we creating opportunities and vehicles for people to keep pace with all of the change? Independent of where we are in the business cycle. It may have more urgency when more people are out of work. But it's a structural change that has to get us to think. Do we need to change our structures as an institution to meet that change, so that the workforce stays employable?
Q: The (Labor Department's September employment report) showed the first decline in payrolls in seven years, likely reflecting effects of the recent hurricanes. Does that give policy makers pause when considering a rate increase later this year?
BOSTIC: It catches your attention. It's not something that has happened in a long time, I think 2010 was the last time we saw a decline in jobs, month-to-month. We knew that the hurricanes were going to have an adverse impact on economic performance. We estimated there would be anywhere between a half-percentage point to a full-percentage point decline in (gross domestic product) as a result of the hurricanes. It's a pretty big range in terms of what that would mean for job numbers. I'm going to have our guys, in the next couple of weeks try to figure out, given that estimate, what would that translate to. And get a sense if this is in that bound or outside that bound. And that will tell us where we think the economy is going. Part of our job now is to try to detect signal from the noise. The hurricanes introduced a lot of noise, so we're going to spend time trying to understand whether a negative 33,000 is a signal or is it really noise that's clouding and covering up a bunch of other things.
Q: What do you see as the cause of soft inflation this year? Do you need to see evidence of a firmer inflation path in order to consider a future rate increase?
BOSTIC: With inflation, it has been puzzling for sure. We were starting to see some turnaround in some parts of the marketplace. And I think this last jobs report showed pretty healthy wage gains, which is interesting, and could suggest we're starting to see some of the tightening. In terms of the why, we went through a significant economic disruption. A lot of people checked out of the economy, and they're starting to come back. The labor-force participation rate among prime-age people is rebounding.
One thing that's very interesting is that a lot of the take up now is women with less than a college education. That group is usually the hardest hit in the recession and the last to come back. So when we start to see take up in that segment, that suggests we're getting to the end of being able to fill with workers who are going to just accept wages. So I think we'll start to see wages pick up in the next 6 to 12 months, which suggests that inflation will follow.
We do have these structural issues with the technology, with the gig economy. They are forces that will keep wages down because it reduced the cost of providing goods -- not just wages, but prices down. So that's a countervailing force that we are definitely watching closely to try to understand how much it is affecting the aggregate number. Our analysis would suggest it's still not a large enough segment of the overall economy to really be driving things, but we're keeping an eye on it.
Q: Any thoughts on the candidates for the Fed chair position? And should (Fed Chairwoman) Janet Yellen be reappointed?
BOSTIC: That's not my decision. It's been great working with Chair Yellen. She's smart, she's pleasant, she's collaborative and she's collegial. I think she's set a great tone for our conversations and deliberations on monetary policy. I've worked will all sorts of people through my career. Whoever the president winds up picking, we'll make that work.
Q: (Kansas City Fed President Esther) George talked Friday about increased labor-force participation reflecting baby boomers staying in the labor force longer. You talked about people coming off the sidelines. Which is happening?
BOSTIC: I think it's both. I was asked, after my speech, has the labor market really worked for people? Has it given them the earnings that allow them to save and allow them to be ready for retirement? There are many people entering those years who don't have the resources, so they're going to stay in the labor market. There was a study that came out like six months ago that said something like 60% of U.S. households couldn't weather like a $500 shock. That would throw them into despair. That means there are a lot of people who will still be working for a long
time because they don't have the buffer.
This is one of the reasons why we're doing this workforce development initiative. We want to make sure that American workers have opportunities that allow them to have high-quality jobs that produce solid incomes, that give them opportunities to consume and do the thing they want today, while at the same time saving for tomorrow.
Q: The balance sheet wind down is starting. Do you expect that will cause long-term rates to rise?
BOSTIC: Eventually. The rollout is incremental. We're not dropping a trillion dollars on the market all at once. My view of the policy, we're going to start this, and we're going to start this at a relatively slow pace. And we'll see how the market responds and then we'll take that response into consideration as we think about making changes to the policy. I was heartened that we announced it, and basically nothing happened. To me that was a sign that the market understood it and was comfortable with the direction. And that the pace of change wasn't going to be so great that it was going to trigger any kind of distress in the marketplace. The Fed tried this before and it didn't go nearly as well. So it's really nice to find we've been able to find a different way to prepare the marketplace so that we can get back into a more normalized position, while at the same time being good stewards for economic growth.
Q: Can the U.S. grow at a sustained 3% or better rate? And are there policy changes that need to happen to make that possible?
BOSTIC: Yes it can. It's not really what I focus on. I focus on to what extent are we creating a stable price level so that businesses have an opportunity to make long-term investments and plan and hire with some degree of certainty about what the future is going to look like. When that happens, we'll see what number pops out as the GDP number. Right now, we know that many firms are sitting on a lot of capital, a lot of cash that could be deployed. I think what they're waiting for are opportunities that they see to do that.
A lot of those are out of my hands, things that would have to be done in Washington. A lot of businesses who have been heartened by some of the moves to lift some of the more recent regulations, and believe that will give them an opportunity to find profitable investment projects.
I don't know if those things are true, and I don't know if those investments will work out, but all we can do is really provide an environment where they can see success, and possibilities, and we'll see how the possibilities play out. If it's that we get to 2.4 or 5.8 -- those are numbers -- I'm much more interested in a seeing signs that businesses are making prudent decisions and trying to do more.
Write to Eric Morath at firstname.lastname@example.org
(END) Dow Jones Newswires
October 08, 2017 16:46 ET (20:46 GMT)