Q&A: New Boston Fed research director discusses Fed return, challenges ahead
Egon Zakrajšek outlines role of regional Fed Banks in ‘last mile’ of fight to lower inflation
The Federal Reserve Bank of Boston has a new director of research for the first time in 12 years, and for Egon Zakrajšek, it’s a sort of homecoming. Zakrajšek worked in the Federal Reserve System for nearly 25 years before leaving for the Bank for International Settlements (or BIS). In this Q&A, he talks about what he learned while away, why he came back, and some of the biggest issues confronting policymakers today.
You have deep roots in Federal Reserve System, including two decades with Board, but then you left for a few years before returning for this new job. What did you learn while you were away, why did you want to come back, and how do you think your prior experience at the Fed (and the BIS) helps in this new role?
For a macroeconomist interested in policy issues, the Federal Reserve System is an amazing place to work – the sense of dedication and purpose, the degree of intellectual rigor, the resources. At the same time, there’s a very explicit policy mission, which by its very nature is focused on the U.S., especially in the Division of Monetary Affairs at the Board, where I spent most of my career. Over these past four years at the BIS, I had an opportunity to look beyond that – for example, to think about policy challenges more relevant for emerging economies and to deepen my understanding of global monetary and financial issues. This broader, bird’s-eye perspective over the policy landscape that comes with working at a “bank for central banks” is very useful and intellectually stimulating. But after some time, I also started to miss the tangible, hands-on involvement in monetary policy that comes with being part of the Fed System.
Working in an international organization with people of incredibly diverse and interesting backgrounds was also very enriching. It put me in direct contact with researchers and policymakers who hold very different views on key monetary and financial issues facing the global economy, and it allowed me to greatly expand my professional network. I feel that my stay at the BIS complements my experience at the Fed and has made me a more rounded economist, both in terms of research and policy.
What appealed to you about the Boston Fed and leading its Research Department?
My first official invite to a research conference was from the Boston Fed. I was finishing up my Ph.D. at New York University when (former Boston Fed President) Eric Rosengren and (Boston Fed economist) Joe Peek asked Simon Gilchrist and me to contribute a paper to a conference, “Is Bank Lending Important for the Transmission of Monetary Policy,” which was held in June 1995. I still remember how stimulating the conference was and how insightful the economists that I met from the Research Department were. In the latter part of the 1990s and the 2000s, Eric and Joe were instrumental in advancing an important and influential research program on the role of credit supply shocks in economic fluctuations and the role of banks in the monetary policy transmission mechanism. These were very much the topics that I was – and still very much am – interested in, so from the start of my career, I was keenly attuned to research coming out of the Boston Fed.
While I was at the Board, there was a steady stream of cutting-edge and policy-relevant work coming out of the Research Department on housing markets, payments, inflation dynamics, and how to think about the nexus between monetary policy and financial stability considerations. Given my interests in banking, I also became very familiar with the highly impactful research in the Supervisory Research & Analysis Unit that is part of Chris Haley’s department. During my interview process, I was thrilled to learn about the applied research and innovative programs that Prabal and his staff in community development are doing to support progress in low- and moderate-income communities.
That is all to say that I feel strong intellectual kinship with the Boston Fed, and I’m excited to work closely with President (Susan M.) Collins and the senior leadership team to advance the Bank’s mission. I’m certain that the Research Department will continue to expand the boundaries of knowledge in economics and finance, focusing on topics that are broadly related to monetary policy and a vibrant and inclusive economy. My colleagues and I will also continue to work hard to provide robust and innovative analysis underpinning monetary policy deliberations and decisions, as well analysis on economic issues facing the First District.
The Fed has been focused on bringing down inflation to its 2% target. Talk a bit about what you see as some of the biggest concerns confronting policymakers today. What is the role of regional Fed economic research departments, like the one you'll be leading here in Boston, as the Fed works to tackle these issues and fulfil our dual mandate?
The Fed has been very effective in bringing down the post-pandemic surge in inflation, though inflation remains above the target. Some key components of inflation have yet to show sustained improvement, which puts us at a particularly delicate stage of the disinflationary process. The key question in the “how fast, how far, and how long?” monetary tightening sequence that the FOMC (Federal Open Market Committee) initiated in March 2022 now seems to be, “How long?”
In navigating the last mile, policymakers face a number of challenges. Economic research departments at regional Feds play a crucial role in helping policymakers assess and manage those challenges and risks. Their diverse views, emphasis on different models and empirical methodologies, and real-time intelligence about local economic and financial conditions are critical in guarding against “groupthink” and can greatly help the committee achieve its dual mandate.
You’re coming back to the U.S. after several years overseas. What’s the transition been like for you and your family? Outside of work matters, what are some things you really enjoyed about being back in Europe, and what you looking forward to as you return to the U.S.?
My wife, daughter, and I really enjoyed living in Switzerland. Despite numbering only about 200,000 people, Basel is a very international city, with nearly a quarter of its population being expats. As a result, people are very comfortable with speaking English, and it’s easy to meet interesting people from all over the world. The downside, of course, is that there is little pressure to learn the local Swiss-German dialect and integrate in the local culture. Still, I was surprised at how settled and comfortable we had become after just four years of living there.
The hardest part of the transition was that my daughter graduated from the international high school this spring and was keen on going to university in the UK, while we had decided to move back to the U.S. Because her classes started at the end of September, my wife and I had to first help her get settled in London and then rush back to Basel to get ready for the move. And when you move internationally, you encounter a lot of frictions involving seemingly innocuous things, like SIM cards, bank accounts, etc. So, it’s been a stressful couple of months, but we are very much looking forward to making Boston our new home and especially exploring New England.