The Sunshine Economy From The Perspective Of The Regional Central Bank Boss

Dec 8, 2017

Raphael Bostic is not a familiar name.

That is unless you work deep inside the financial industry or operate inside academic circles researching the economy. Bostic is the president of the Federal Reserve Bank of Atlanta. His territory includes South Florida.

He says he worries a lot about economic mobility. He thinks all business owners should be concerned about paying their employees enough to afford a decent quality of life, and he's comfortable with the Fed's approach to slowly raise interest rates.

WLRN spoke with Bostic about the regional economy, jobs, pay and, of course, interest rates:

WLRN: How's the economy of the southeastern U.S.?

BOSTIC: In Georgia, the Atlanta metro area is doing gangbusters. It's growing a lot. There's a lot of job creation, but much of the downstate part of Georgia is not performing nearly as well. You see the same sorts of things in Florida. Miami is starting to grow at a robust pace. Samthing in Tampa. Jacksonville is quite powerful. But then you have other pockets through the state [such as] some of the Panhandle area that's not nearly as robust. 

What do you see that gives you the confidence economic growth can be sustained around 2.5 to 3 percent?

The first thing is that most people who are making investment decisions have not forgotten the lessons of the Great Recession. That was a very difficult time. It was very painful. And what it's led to is a bunch of changes in terms of how businesses and investors behave such that they're much more sensitive to risk and downside potential than I think they were in the lead up to the Great Recession.

The second thing is that we've changed our regulatory system in terms of banking in a very significant way. Banks are much more circumspect about the types of things that they're going to invest in and the regulators are actually paying much more attention to concentrations of risk and the distribution of risk. So I think that we are seeing a lot more caution by the business community more broadly.

Does that caution hold back economic growth?

I worry a lot about economic mobility. - Federal Reserve Bank of Atlanta Pres. Raphael Bostic

 The caution definitely puts sort of an upper boundary on how much growth we would expect to see. And frankly, there's a lot of debate about whether that boundary is the right boundary. Is it too low or is it just right?

The unemployment rate is below 5 percent in some places in South Florida. What are you hearing from the South Florida business community about the job market and pay?

We actually hear a conflicted story. On one level, employers are saying, "The market's tight. We're struggling to find workers and talent is scarce for the types of things that we need to have done." That comports with the unemployment rates that you talked about which suggests we're doing in Broward and South Florida at least as well as the nation and much much better than we did at the depths of the Great Recession.

But at the same time, economic theory would suggest that if markets are really that tight then you have to compete more to keep your workers. So we should see some upward pressure in wages and we're not seeing that. That's one of the great mysteries of today's economic era. If [businesses] really do have scarcity, if [they're] struggling to keep people, why is it the case that [companies are] not taking steps to compete to make sure that [they] keep them? We're testing a number of theories.

We had a human capital advisory committee meeting in Atlanta [in November]. One thing that came out of that was the idea that it is much easier for workers to do job searches now than ever before. They can look for work through their phone and do robo-applications. The time to find that new job is going down. The frictions in the labor market are going down, so our natural rate of unemployment should be lower.

Federal Reserve Bank of Atlanta Pres. and CEO Raphael Bostic (right).
Credit courtesy of David Fine/Federal Reserve Bank of Atlanta

The Federal Reserve Open Market Committee is widely expected to raise interest rates by a quarter percent at its meeting Dec. 12-13. Do you anticipate that to happen?

 I can't tell you what my colleagues are going to say. What I would tell you is that that kind of strategy approach --  I'm comfortable with that.

We've had very low interest rates. We've put a lot of assets on our balance sheet. So we've opened the spigot to say, "OK, we're giving the economy as much juice as we possibly can." Backing off of that is unlikely to throw the economy into a recession.

A lot of what we're trying to do is get back into a more neutral position. That's going to mean we're going to have to move our interest rates, but we don't want to do it in such a way that introduces extra volatility if we can avoid that.

 We've seen the high end of the housing market, especially luxury condominium prices, level off. But in that median home price level, around $330,000, there still is very tight supply. Mortgage rates are still very low with the anticipation of the Federal Reserve Open Market Committee slowly raising interest rates. That could increase the cost of credit and really have an impact on that market, couldn't it?

 I  think that our [interest rate] movements are going to be slow. We're not going to see interest rates move by 6 percent or 4 percent. So from a historical perspective, mortgage rates are still going to be relatively  low. So the cost to finance buying houses will still be by historic standards low. It will be higher. 

Part of the challenge we have is that we only control one part of the equation. For housing markets to function we need to make sure that the supply is working in a reasonable way. We need to make sure that there is enough housing that's out there at affordable rates.

How do you see economic mobility as you've encountered it in South Florida?

 I worry a lot about economic mobility. It's really the idea that people can, when they see opportunities wherever they happen to be, they can get access to them. So if they need to move to somewhere else they can do that. What we've seen in the last several decades is a long-term trend that mobility is dropping and it's dropping pretty much everywhere.

I think there are a couple of components that are contributing to this. One is transportation. The transportation network is increasingly strained because we haven't invested to keep it up to the standards that are necessary. Two is the skills mismatch. Many of the skills that are needed for the jobs of today are not the skills that people have. We don't have vehicles to get people those skills. Third, people are much more sensitive to family and community and [won't] go places that they haven't gone before.