Memorandum Regarding New England Perspectives on Fed Policymaking: The Fed Listens Conference
The purpose of the Fed Listens conference was for Federal Reserve policymakers to gather feedback from a wide range of stakeholders on the Fed’s approach to monetary policy. This conference and similar events at other Reserve Banks across the country are an important external-facing part of the review of the Fed’s monetary policy strategy, tools, and communication practices that the Federal Reserve is conducting in 2019.
The Boston Fed conference gave representatives from various groups and communities in New England the opportunity to present their views to Fed policymakers on how well the Fed is fulfilling its dual mandate of stable prices and maximum sustainable employment. Accordingly, conference participants shared their perspectives on the effects that interest rates, inflation, and the labor market have on their demographic cohorts and communities.
The conference was divided into three panel discussions. The panel for the first discussion comprised representatives from organizations that focus on underserved populations. The second panel included small business owners, entrepreneurs, and labor leaders. Representatives from various demographic groups formed the third panel. Moderators posed a number of questions to each panel, many of which were asked of all panels. This summary highlights the discussion points prompted by each question, and it includes an overview of the responses to two surveys related to the conference that were conducted by the Boston Fed.
Question 1: What are the cost and benefits of the current, tight labor market?
Most of the panelists representing underserved populations and different demographic groups agreed that the tight labor market was generally beneficial. However, some panelists noted that while the national unemployment rate is near historic lows, the unemployment rate remains relatively high in minority and low-income communities. Panelists also emphasized in addition to unemployment, under-employment and low wages are serious problems, particularly in places where the cost of living is high, such as Boston. Some panelists expressed a concern that wages are not rising at the rate they would have expected, given the overall tight labor market. Still, for these groups, the overall benefits from the increase in jobs outweigh the concern about low and slowly-rising wages.
Small business owners from all the panels focused on the challenges posed by the tight labor market, primarily the difficulty of finding and hiring qualified employees. One panelist from a manufacturing company described attempts the company has made to address this issue, for example by partnering with the local prison and creating a program that trains and recruits former inmates for employment.
Question 2: Regarding the dual mandate, how do you view the relative importance of low unemployment versus stable prices?
The representatives for underserved populations agreed that in their communities, sustained low unemployment is more important than low inflation, though they were concerned that high inflation tends to lower real wages in their groups. Job turnover and low wages are widespread in these communities, panelists noted, and long periods of low unemployment can yield better-paying jobs with less turnover.
Entrepreneurs and small business owners noted the link between low unemployment and wage pressure. These panelists agreed that wage pressure is one of the biggest concerns for small businesses, particularly those whose employees are at the low end of the wage distribution. One small business owner said that the company might soon have to raise its prices due to the wage increases it has had to pay for its employees.
Panelists representing retirees said inflation was a major concern for that demographic group; retirees want their savings to hold value and so they are concerned about increases in the cost of living. Panelists also expressed skepticism about whether the inflation rate accurately represents changes in the cost of living, particularly for retirees, because costs such as those associated with health care have generally been rising faster than overall inflation.
Question 3: What effects have you seen from the long period of low interest rates? What are some of the costs you experience when interest rates change?
Panelists representing underserved populations said this question was not applicable to all members of their communities, because many have not had access to low interest rate credit. These populations have traditionally been more susceptible to predatory lending, and a good portion of the community members have poor credit histories, which preclude them from taking advantage of low interest rates.
Small business owners generally found the low interest rate environment beneficial; one owner noted that the company recently increased investment because low interest rates allowed it to do so. However, business owners also said that they had expected rents to be lower than they are in this environment, and that high rents have prevented some companies from expanding as rapidly as they would like to.
Representatives for retirees understandably conveyed a more negative view of the low interest rate environment given the low return on savings.
Question 4: How has the Fed done in terms of achieving its mandate over the past ten years? What can the Fed do better?
Overall, panelists spoke positively about the Fed’s work over the past decade. Many participants offered suggestions for how the Fed could do a better job serving their particular communities or the country as a whole, but many of the suggestions ventured into fiscal rather than monetary policy. The suggestions associated with the Federal Reserve overwhelmingly focused on community engagement, including establishing financial literacy education programs and inviting members of the various communities into the Bank for more events such as this one.
As a part of this research outreach effort, the Boston Fed conducted two surveys (see Appendix). One involved 35 conference participants. The median age of the respondents is 49, and the majority have a professional degree or doctorate. The second survey, completed through Amazon Mechanical Turk (Mturk), involved a larger (992 respondents) and more diverse group of participants. The median age of these respondents is 33. The majority have a college degree or higher, but this sample has a slightly lower level of educational attainment than the conference survey sample.
Both surveys asked about respondents’ views on unemployment and inflation, and they yielded different results. The conference sample aligned with the conference panelists with the majority (63%) of respondents indicating they valued keeping unemployment low over keeping inflation low. The larger Mturk sample was more evenly split on this question, with 49% preferring to keep unemployment low and 51% preferring to keep inflation low. This split varied slightly by level of educational attainment, but most of the Mturk survey respondents who said they preferred to keep unemployment low are currently unemployed. Among the unemployed, the split was 67% to 33% in favor of low unemployment.
Regarding tolerable levels of unemployment, most of the participants in the two surveys said an unemployment rate over 5.0% is unacceptable; the central tendency of responses for a maximum tolerable unemployment rate fell between 4.1% and 5.0%. Both surveys revealed uncertainty about personal experiences with inflation. Twenty-nine percent of the conference survey respondents said they had ”no idea” what inflation rate they had experienced over the last year. Of those who did select a rate, the majority said it was between 1.1% and 2.0%. Similarly, in the Mturk survey, the greatest share of respondents (25.5%) selected an inflation rate of 1.1% to 2%. However, a large portion of respondents reported inflation rates from 2.1% to greater than 8.0%. Regarding maximum tolerable inflation, the conference survey’s median response was between 2.1% and 3.0%. The median response remained largely unchanged when the question was asked in the context of income increasing at the same rate as inflation. In the Mturk survey, the majority of respondents said that an inflation rate over 2.0% is unacceptable. The Mturk survey results included a breakdown of responses by age group and showed that older respondents were less tolerant of inflation. Major concerns regarding inflation included worries about the difficulty of budgeting, a decline in real income, deterioration of savings, and stress.
Many of the participants in the Fed Listens conference appeared to be satisfied with tight labor markets and low interest rates, though some expressed concerns about whether all groups have received equal benefits from this environment. According to participants, underserved populations and minority communities still face higher unemployment and struggle with high job turnover. In addition, members of these communities often are unable to access credit due to poor credit histories and susceptibility to predatory lending. On the other hand, small businesses have struggled to find employees in this tight labor market. Most panelists said the groups they represent value low unemployment slightly more than low inflation. Responses from the conference survey reflected a similarly slight preference for low employment over low inflation. Participants in the Mturk survey leaned the other way, with slightly more respondents valuing low inflation to low unemployment. Concerns regarding inflation came mostly from the retired community and older survey respondents, who worried about their savings being depleted by cost of living increases.
Conference Survey Questions
(The Mturk survey is similar but includes more detail.)
- Which of the following options best describes the price inflation you experienced in the past year (12 months)? Please select the inflation range that best describes your experience. (Available inflation ranges varied from “<0%,” “0%–1.0%,” “1.1%–2.0%,”.., “7.1%–8.0%,” “more than 8.0%,” and “No Idea.”)
- What levels of annual inflation do you feel are acceptable? Please select all the inflation ranges that you would feel comfortable with. (Available inflation ranges varied from “<0%,” “0%–1.0%,” “1.1%–2.0%,”.., “7.1%–8.0%,” “more than 8.0%,” and “No Idea.”)
- If there are levels of inflation that you don't find acceptable, why is that? Select all that apply.
- With high inflation, it is difficult to plan spending and do the household budgeting
- With high inflation, I cannot purchase as many goods and services as before
- With high inflation, I feel stressed
- With high inflation, the value of my savings will deteriorate
- With low inflation, the economy will slow down
- With low inflation, my income will grow more slowly
- With low inflation, I will earn less on my savings
- With low inflation, I feel stressed
- I am comfortable with all levels of inflation
- Are there any other reasons for your being uncomfortable with certain levels of inflation? Please specify the reasons separately for high and low inflation levels, if applicable:
- What levels of the national unemployment rate do you feel are acceptable? Please select all levels that you would feel comfortable with. (Available unemployment ranges varied from “0%,” “0%–1.0%,” “1.1%–2.0%,”.., “7.1%–8.0%,” “more than 8.0%,” and “No Idea.”)
- Do you think the national unemployment rate can be too low?
- Why do you think that the national unemployment rate can be too low? Select all that apply.
- Unqualified workers will be hired
- Firms will have trouble finding workers
- I will have to work overtime
- Work productivity will decline
- It will lead to more immigration into the United States
- Inflation will go up
- Workers will be tempted to stay in dead-end jobs rather than pursuing further training for a better job in the future
- Currently, both the unemployment rate and the inflation rate are relatively low. If you had to choose between keeping unemployment low by allowing inflation to rise, or keeping inflation low by allowing unemployment to rise, which would you prefer—keeping unemployment or inflation low?
- If the Federal Reserve could improve your understanding of how monetary policy affects you, it would be through the following ways: Select all that apply.
- Better web presence
- Inviting comments more frequently
- Increased social media engagement
- More consumable or lay-friendly content
- More opportunities to receive updates
- More public meetings
Note: There are no right or wrong answers. We are interested in your experience and opinions.