Raphael Bostic, president of the Federal Reserve Bank of Atlanta, spoke with Yahoo Finance to discuss the COVID-19 recovery, economic inequality, and the future of Fed policy.
Below is a transcript of his appearance on Feb. 4, 2021.
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BRIAN CHEUNG: Well good morning. I’m Brian Cheung, welcome to Yahoo Finance Presents. If you talk to any economist right now you’ll find that the big issues are the COVID recovery, economic inequality, and obviously also Federal Reserve policy. And to talk more about this we have Federal Reserve Bank of Atlanta President Raphael Bostic here this morning. Good morning, President Bostic.
RAPHAEL BOSTIC: Good morning Brian it’s good to see you again.
BRIAN CHEUNG: So I want to kick off this first question just by talking about the vaccine distribution. We’ve heard it pretty clearly from Fed officials that this is the biggest factor for getting the economy back on track. How is the rollout going specifically in your district in the South and have you seen any impact of the vaccine yet in the economic data that you’re watching?
RAPHAEL BOSTIC: So the vaccine rollout has been choppy pretty much everywhere. This is a very large logistical challenge and one that we really never tried to do before. So I think there's been a lot of learning. I know here in Atlanta, the counties have really started to understand how to engage with the public, just to do scheduling, so that things move a lot smoother and we're starting to see a pickup on that. In terms of the data, it is still very, very early, and I know a lot of folks are excited. They're looking forward to it, but it hasn't gotten through the population nearly enough to really affect aggregate performance.
The one thing I will say: the premise of the question is exactly right. In the sense: how the virus progresses will determine, in large part, how the economy progresses. And you know that going through the holidays, there was a real spike in viral infections, and at coming off of that, that's calmed down a bit. And we've started to see labor markets improve in their performance and that's just, I think, very indicative of the reality that this is a public health crisis first. And we have to deal with that if we're going to hope to see the economy recover.
BRIAN CHEUNG: Well, you mentioned the labor market there and I think that's interesting because once people get the vaccine it's not like they're back into the labor force on you know T+1 after getting the vaccine. So, what are you seeing in terms of the numbers? We saw that the economy actually contracted in terms of jobs in the month of December. We're getting another report tomorrow. It seems like the jobless claims today seem to suggest that there could be a tick down in people running to unemployment claims — of course that's on a lag. So, what do you expect to see in that report tomorrow and how is that shaping your views on where the labor market is going to go in the near term?
RAPHAEL BOSTIC: Well you know, we all expected that going through the holiday season was going to be tough. And coming past that, you know, I'm hopeful that we will see numbers that suggest that we've hit a trough of sorts, and we will start to see jobs being created again.
And my hope is that that reality, plus the vaccine getting into the population, plus the public really listening to public health advice around wearing masks and doing social distancing, will lead to sort of a continuous and steady improvement. But I do have to say, that there's a lot of pluses in there, and there's a lot of uncertainty that still remains in terms of what this experience is going to look like. So we are going to have to stay very diligent in terms of paying attention to how businesses are experiencing the economy, and also the psyche of the American public.
BRIAN CHEUNG: So let's talk about your economic outlook then. You said there are a lot of pluses but there could be some downside risks as well. On balance, where do you see the year 2021, in terms of GDP or employment? Where we'll be at the end of the year, heading into 2022? I know it's early, but what's your forecast?
RAPHAEL BOSTIC: Yeah, well it is early and you know, our models coming into the year suggested that 2021 was going to be a strong year. It would be a continuation of the emergence from the depths of that first hit to employment and GDP. So we're looking at GDP growth somewhere in the 5 to 6% range before the year, and that is sort of our modal expectation. But I recognized, you know I said this before, there is so much uncertainty. If the virus vaccine comes out faster and gets distributed we get to an acceleration point, it could go better than that. If there are more hiccups, or if we find that some of the viral mutations fight against the vaccine a bit stronger than we're hoping, it could be a little less than that, but the modal is in the 5 to 6 range and I'm hopeful that we won't have that many hiccups so we can hit that number.
BRIAN CHEUNG: So along the way, it seems like the Federal Reserve is going to be in view specifically on the quantitative easing policy. We know that you'll be keeping interest rates near zero for quite a while so let's focus on that $120 billion a month pace of asset purchases that you've been doing. You said in the past, I believe it was a few weeks ago, that if the recovery beats expectations - that's the caveat - you could pare that back this year and kind of begin that T- word “tapering” process. But people were concerned that the taper talk could spook markets like in 2013, we don't need to recall the taper tantrum. Did you take the risk of saying that because you feel like there needs to be more guidance on the quantitative easing policy?
RAPHAEL BOSTIC: So, you know, I basically talk about these things just to give people an understanding that we're not locked into anything and our policy is actually going to be data-driven. And so I'm going to let the data and the numbers guide how I think about what our appropriate stance for policy is. Now I'll say my modal forecast is for this economy to be in a place that we're gonna still need to offer support, and extend that support very robustly. And I don't want there to be any uncertainty about that, that we're going to be sort of eager to step back from our support of the economy. One other thing I should say — and I didn't say this in those earlier interviews and that was a mistake on my part — is that, you know our new long-run framework, says explicitly we're going to be willing to let the economy run hot.
And so, I think that will also factor into how I think about what that caveat, if the economy works moves stronger than expected, looks like. I think it's going to have to be very strong, and we will need to really monitor how well we're doing in terms of employment and in terms of inflation. Let me just say one other thing on this because this is something that we started to really see in the data, which is that the GDP numbers are recovering much more strongly than the employment numbers. So we're starting to see output perform in a very positive way. And in a stronger way than employment, and it's important for everyone to know employment is our mandate, so that'll be something that we focus on and then I look at in terms of assessing how well the economy is performing.
BRIAN CHEUNG: OK, so I want to go over to employment but then just to drill down: so does that modal forecast get the U.S. in good enough of a place where you do start to taper at the end of this year?
RAPHAEL BOSTIC: Not right now. So I would say that's not my expectation.
But I will be open to any possibility, and that can go in either direction. I think that's the most important message to come out of this.
BRIAN CHEUNG: OK and then one last point on that before we go over to employment, a very important topic but a lot of people are wondering what's the consequence of this quantitative easing program when it comes to asset valuations. We have these “meme stocks,” if you will, that have been moving over the past week or so. The Fed is not a securities regulator but that type of market behavior: is that's something that you're looking into or worried could turn into a bubble?
RAPHAEL BOSTIC: So at this point, I'm going to let the SEC handle that I mean you know that this is not our area, but we have to pay attention and if there are systemic risks we'll think about what to move forward, or how to move forward. But right now I'm not using the experiences there, that's not shaping how I'm viewing the economy or where our policy stance should be.
BRIAN CHEUNG: Got it. So let's talk about inequality, there was a Fed conference this week. The system seems to be very zoned in on this where you pointed out that not all unemployment is the same: that the most affected are often times low-income or minorities or women. There's been talk about policies that help those specific groups get back but I feel like there's not enough talk on why, pre-pandemic, such a high proportion of low income workers are Black, are women are minorities, so structurally what causes that and how does that inform your, your policy stance coming out of this?
RAPHAEL BOSTIC: Well, you know, Brian there are college courses that go semesters long on that question. So I think that this is a long and a big issue and I'll try to get to this in some more high-level ways. First, I think we have to look at our education system and the quality of schools. How human capital and many minorities live in lower income communities where the school have struggled for many. many years. And this was a point that was brought out during our racism in the economy session on education. A second thing is around just networks, and people not being connected in, you know, African-Americans for many years were locked out of certain industries and certain sectors. And so they don't have that long connection of people that they can talk to and engage with and become aware of what's needed to get into those sorts of jobs. And a third thing that really came out in our workforce development webinar series is that many times, there are barriers that are set up by employers. Where employers are not really sensitive to the reality that African Americans and Latinos and other minorities actually have the skills to do the jobs, but because of how screening has happened, they're not really given the same sort of opportunity. And so, it's complicated and so all of these are at the structural level, and it's really just the processes and practices that we have that are really constraining access to opportunity for minorities across the board.
BRIAN CHEUNG: Now, obviously the Fed can't address all those things that you just outlined with the tools that it has but there's a piece in New York Times this week detailing the fact that 11 of the Federal Reserve's 870, economists are black. You're the only African American Reserve Bank President in the system right now. Is that part of the problem?
RAPHAEL BOSTIC: Well, I don't know. I don't know if it's part of the problem. In some degree, it's a byproduct of the structural realities that we have in our society. And you know, I will say that we are working hard to fight against that. One thing I've been really pleased by is that we acknowledge this as an issue and we're continuing to work. And I will tell you, I've worked on this for many years - I don't like to call numbers because people do the math on that - but this is a hard thing. And you know we are working hard to make sure that the pipeline starts to change, so that we have a different pool of people to select from. And when we're trying to hire right now, there just aren't enough people in economics and in finance, that are minorities and that makes our competition for them hard to win. But we're gonna keep working on it, and I'm looking forward to the day when we don't have this discussion anymore, and instead we're celebrating having more minorities in the Fed, and in finance more generally.
BRIAN CHEUNG: Absolutely. Well, hopefully we can get to that point relatively soon but Federal Reserve Bank of Atlanta President Raphael Bostic speaking on a wide ranging number of topics here on Yahoo Finance. Thank you so much for joining us this morning.
RAPHAEL BOSTIC: Brian it's always a pleasure to talk to you. I look forward to continuing the conversation in the future.
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