Policy Summit 2019: Connecting People & Places to Opportunity
The Fed Listens: A Discussion with Federal Reserve Leadership
The Cleveland Fed took several approaches over the first half of 2019 to solicit a wide range of perspectives from diverse stakeholders to help inform the Fed’s review of the strategy, tools, and communications practices used to pursue its monetary policy goals. Read the full summary of the Cleveland Fed’s “Fed Listens” program.
The very low unemployment rate and the stable inflation reported by government agencies may mask serious deficits in low- and moderate-income communities, community development practitioners and researchers told Fed policymakers at the Federal Reserve Bank of Cleveland’s Fed Listens session, June 21, 2019, in Cincinnati. Low pay and mismatches between job openings and workforce skills are among the shortcomings preventing low- and moderate-income (LMI) communities from sharing more fully in a steadily expanding economy, Fed Listens participants told Cleveland Fed President and Chief Executive Officer Loretta J. Mester and Federal Reserve Governor Lael Brainard.
The Cleveland Fed’s event was one in a series of listening sessions being held by Reserve Banks to help inform the Federal Reserve’s review of the strategy, tools, and communication practices used to pursue the monetary policy goals established by Congress: maximum employment and price stability. The Fed Listens session capped the Cleveland Fed’s Policy Summit 2019: Connecting People and Places to Opportunity, hosted in partnership with the Federal Reserve banks of Philadelphia, St. Louis, Minneapolis, and Chicago.
In introductory remarks, President Mester noted that the Federal Reserve has a keen interest in understanding the impact its research and policy has on its various constituents, including those in low- and moderate-income areas. Governor Brainard added that the Fed was undertaking the Fed Listens initiative “to hear how Americans are experiencing the economy day to day and to make sure we are carrying out the monetary policy goals assigned to us by the Congress in the most effective way we can.” About 200 Policy Summit participants were then asked to think about and discuss two questions during lunch:
- According to the national statistics, the labor market has improved significantly compared to five years ago. Today, what does the employment picture look like in low- and moderate-income communities that you know and/or serve?
- Over the last five years, official measures of inflation have typically been running below the Fed’s 2 percent objective. How has inflation been affecting the low- and moderate-income communities you know and/or serve?
Participants shared views on these questions at their tables and then with President Mester and Governor Brainard. A summary:
Question 1: Employment in LMI Communities
A recurring observation among attendees involved employment mismatches between the needs of businesses and skills of available workers, as well as a shortage of paths out of low-paying positions. Discussants noted an abundance of low-skill, low-wage jobs and a dearth of mid-level or mid-skill jobs. Attendees from Ohio and Kentucky observed that the recent surge in low-wage-job creation followed the exodus of manufacturing jobs paying livable wages. Underemployment—not necessarily unemployment—is a pressing concern in LMI communities. Either high-skill workers are provided opportunities in positions far below their capabilities or low-skill workers aren’t receiving adequate training for higher-skilled open positions, participants said. If people are able to climb a rung or two up the income ladder, they must contend with cliff effects involving the loss of access to government-subsidized programs following increases in household income. Some attendees said workers often face an unappealing tradeoff between a relatively low-paying job versus benefits such as SNAP (Supplemental Nutrition Assistance Program), affordable housing subsidies, and healthcare coverage.
Participants at one table said wage growth is a better indicator of the nation’s economic health than inflation. Several groups mentioned that wage stagnation is deepening wealth and income gaps, and one speaker summarized a table’s thoughts on the availability of entry-level positions this way: “People don’t want them.” Lack of transportation linking people to their jobs was a recurring theme, particularly for people in rural areas. Commenting on persistent transportation shortcomings, one attendee suggested that community development leaders should target job creation in LMI regions with difficulties accessing high-opportunity areas.
To address mismatches, participants suggested improving both education and transportation. Regarding education, attendees said both schools and employers must improve how they prepare the labor force. One participant noted an abundance of technical programs at community colleges near Dayton, Ohio, that are routinely underutilized, and another said employers are increasingly importing workers from other locales for their businesses rather than investing in local workers. Other employment challenges frequently mentioned included the opioid crisis and reintegrating formerly incarcerated workers into the labor force.
Question 2: Inflation
Inflation was not a primary point of concern in many discussion groups. During the open-discussion session with President Mester and Governor Brainard, one participant underscored that residents in LMI communities are generally unaware of inflation because current prices are too high relative to the wages employers pay. Similar notes from table moderators suggest this was a common point of view.
While many LMI communities report not feeling the relative effects of inflation, participants did say the rising cost of necessities does burden households. Many tables cited childcare and healthcare costs as two major financial pressure points for LMI individuals. Participants noted the direct impact of healthcare costs on LMI families. Others noted an indirect effect: rising healthcare costs for businesses puts downward pressure on wages. One commenter also suggested reconsidering how inflation is calculated for LMI individuals, particularly given the fact that expenditures such as housing, utilities, and groceries account for a large percentage of income for low-wage workers Participants expressed skepticism about the robustness of economic health based on topline numbers. “Economic health isn’t what the numbers show,” one participant wrote. There’s “no resiliency among LMI communities.” “Many people are struggling, so how are we near ‘full employment?’” another wrote.
The Federal Open Market Committee will be discussing economic research and the perspectives offered during the Fed Listens events as part of its policy review. Policymakers plan to report their findings to the public during the first half of 2020. Governor Brainard summarized some of the main themes she heard from the discussion, including the lack of connection felt by communities cut off by physical barriers, such as those in rural areas, or those seeing a high incidence of opioid addiction, along with structural barriers tied to racism or formerly incarcerated people. Brainard concluded that participants’ “insights today were extraordinarily valuable to us. What’s clear to me is that this expansion and continuing it is extremely important to create opportunities, but it’s not enough.”
In her closing remarks, President Mester noted that many of the solutions to the economic stresses of LMI communities and people lie outside the realm of monetary policy, but she pledged to bring their concerns to the appropriate policymakers. “What we can do by collecting your comments and summarizing them is make sure that they get into the hands of the people that can actually make those policies,” Mester said. “My promise to you is that we will make sure that people hear what you’re saying.”