Atlanta Federal Reserve Governor Raphael Bostic, who is among the Fed’s most dovish* central bankers, said central bankers have plenty of time to watch how the economy plays out and be cautious when it comes to interest rates, Bloomberg reports.
In a wide-ranging discussion with Bloomberg News representatives in Atlanta, Bostic discussed the outlook for the labor market, tightening bank lending standards, rising productivity and new rules under the Community Reinvestment Act (CRA), among other topics.
The tightening of bank lending
Bostic said a tightening of credit is on the way. Bankers at large and small institutions or other institutions in the financial markets admit to being much more cautious and hesitant, he revealed.
Banks “are not trying to lend as generously as they otherwise would. And when they do, it’s usually for smaller loans than they would have made before. So I think there is clear evidence of a slowdown and I don’t expect that to change over the next few months.”
“I read the SLOOS survey beforehand (Senior Loan Officer Opinion Survey due on Monday) but I didn’t really need to because the signals have been consistent lately,” he added.
Relativity in the labor market
The “labor pool” that Bostic and other officials saw signals of earlier in the year has eased in part as the labor market loosens and employers say there are more candidates suitable for vacancies and less turnover .
“Right now, the labor market is still tight… But everything is relative. I can’t afford to lose anyone because it’s so hard to fill those positions,” businesses thought exactly a year ago, Bostic recalled. “I don’t hear people talk like that today,” he said.
“Most business leaders I’ve spoken to are looking to retain their workforce. They’re not looking to expand their workforce a lot, but they don’t want to lay off people either… There are some sectors, like housing, mortgage lending and the like, where it’s clear the economy has slowed down a lot and that’s why layoffs are happening. there. But right now they’re really localized in those sectors, rather than covering a wider scale,” Bostic added.
Business properties at risk
“There’s going to be some upheaval in commercial real estate” over the next three years or so, Bostic said, pointing to the multifamily residential sector in particular.
“First, only the financing costs will reduce the value. And then when you have that lower estimate of the property’s value, the question of how to solve the refinancing problem remains open. Difficulties will be observed,” he commented.
“The second is that the way people work has changed. And so the demand for space has decreased significantly. And some may argue, well, is this trend really going to continue? In fact, I think so, Bostic points out. – I don’t think we’ll go back to the five-day-a-week model where everyone is in the office. And because of this, the demand for space has decreased, and with it the amount that can be demanded per unit of area will decrease. And so the funds that can be generated from these properties will be lower, which will also affect their valuation.”
The higher productivity
According to Bostic, the increase in productivity is “one of the untold stories of late. The whole plan that we had in terms of what had to happen to slow down inflation was really based on the idea that all or most of the work would have to be demand-side.”
“But if there’s increased productivity, or intense hiring, it’s all very much supply-side.” And if you draw your graphs on a piece of paper where the supply is disconnected from the accounts, you can get stronger growth and lower prices, and that’s part of the dynamic that I think is quite interesting. Is this another case of stagnation? I can’t say,” admitted Bostic.
Politics in an election year
Asked about policy during the election year, Bostic acknowledged that the Fed may be somewhat hamstrung, but stressed that central bankers will remain steadfast in their pursuit of their inflation and employment goals.
“If we’re required to do something to get our metrics back to the levels they need to be, it’s our duty to do it. I think we should be prepared to do, as the president likes to say, whatever it takes,” he commented.
The new rules of the Reinvestment Act
“It’s a big change. And I think it’s actually very important,” the Atlanta Fed governor said about the change in the law.
“I’m fully prepared to go on tours to talk to bankers about where the potential is, how this can really help them fill and meet the needs of the communities so that we get the most out of this regulation,” he commented.
“I’m extremely optimistic and I think in a funny way it’s a confirmation of the importance of banks and financial institutions in a community. I hope the bankers really understand that we want them to do their best and help these places be better,” added Bostic.
The fight against black unemployment
“I think it would be very difficult to explicitly include that in the law. We do not have the right to charge different interest rates to individuals based on their economic status, ethnic origin or geographic location. How that will happen remains to be seen, but it may just be the nature of our politics and economy at the moment, he said.
“Our bank’s slogan is ‘An economy that works for everyone’… We want to think about what kind of barriers there are that prevent it from really working for everyone,” Bostic commented. So a lot of the things we do for supporting the economy as we understand it is about spotting those barriers, trying to analyze them and then talking to the authorities to show them what’s really holding the economy back, he added.
*Central bankers who believe that inflation is a far greater scourge on the economy than slow growth and therefore rarely vote to cut interest rates are nicknamed “hawks” and those who are inclined to vote to cut interest rates and to stimulate the economy, are “pigeons” – note author.