By Eric Morath
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?
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 eric.morath@wsj.com
(END) Dow Jones Newswires
October 08, 2017 16:46 ET (20:46 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.