Lael Brainard: Perspectives on the economy from Scranton
Speech by Ms Lael Brainard, Member of the Board of Governors of the Federal Reserve System,
at the Community Bankers Roundtable, Scranton, Pennsylvania, 11 July 2019.
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Thank you to my colleague Pat Harker for the invitation to join him here this evening. In my time at
the Federal Reserve, I have found that hearing directly from people around the country about how
their communities are experiencing the economy is vital to carrying out my responsibilities. It
helps me to understand what is working well and what the challenges are, and it provides ideas
on how to improve economic opportunities. Today I look forward to hearing your perspective on
the economy and the banking business in and around Scranton.
Before hearing from you, I was asked to provide my perspective on the national economy.
Recent data suggest the economy is growing solidly. Consumer spending is robust, buoyed by
the strong labor market and continued strong confidence. Last week's strong jobs report
provided reassurance that employment has continued to expand at a healthy pace. Payrolls have
risen at a 170,000 monthly pace over the past three months-more than enough to provide jobs
for new entrants to the labor force. The unemployment rate remains near a 50-year low, wages
are growing at a moderate pace, the percentage of prime-age adults who are employed is close
to its pre-crisis peak, and claims have been hovering around historic lows. Furthermore, financial
conditions overall remain quite supportive of continued employment and output growth.
By contrast, capital spending by businesses has been lackluster, and indicators of business
sentiment have been soft. The recent G-20 summit provided a constructive change in tone about
trade discussions, but business sentiment and investment plans will likely remain sensitive to
uncertainty around trade and the global outlook. Fiscal policy is also a source of uncertainty, with
both the debt ceiling and the federal budget needing to be resolved.
Over the past year, inflation has fallen short of the Federal Reserve's 2 percent objective, and
that has been the case more often than not in recent years. On the one hand, that means the
economy can continue to grow without pushing inflation too high. On the other hand, inflation that
runs too low for long periods can pose difficult challenges. Below-target inflation reduces the
amount of room the Federal Reserve has to cut the federal funds rate to cushion the economy
from negative developments. And it could lead people to lower their expectations for future
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inflation, which in turn could lead to an increasing shortfall of inflation from our objective. Indeed,
some indicators of longer-run inflation expectations have been on the soft side in recent months.
Putting all of the pieces together, it appears the economy has been doing well so far this year,
bolstered by confident consumers and a strong job market. And after fluctuations earlier in the
year, financial markets currently appear supportive of growth, with borrowing rates low and the
stock market at all-time highs.
While the modal outlook is solid, the downside risks, if they materialize, could weigh on
economic activity. Taking into account the downside risks at a time when inflation is on the soft
side would argue for softening the expected path of monetary policy according to basic principles
of risk management. Of course, my judgment about the actual path of policy will continue to be
influenced by the evolution of the data and the risks.
I am mindful that low spreads on corporate credit, together with risky corporate debt at historic
highs, suggest financial imbalances are growing. We should be addressing these financial
imbalances by activation of the countercyclical capital buffer, more rigorous use of stress tests,
and active monitoring of leveraged lending.
So what does this mean for you and the families and businesses you serve in and around
Scranton? I hope and expect that the progress you have made in transforming the region's
economy will continue as the expansion extends into its 11th year. I am well aware of the
challenges this area has been working to overcome since the Great Recession. And I am
impressed by how much has been accomplished here. You have had important success in
attracting new logistics jobs to take advantage of Northeastern Pennsylvania's proximity to major
cities. You are making important investments in the forward-looking "eds and meds" (education
and health-care) sectors by leveraging the 19 colleges and universities in and around Scranton.
There are signs that these investments are paying off. Household incomes in Scranton are
growing again. The area's unemployment rate is close to its lowest level in the past 40 years. I
look forward to hearing from the community bankers gathered here today about the outlook for
families and businesses in Northeastern Pennsylvania and how you are helping the region invest
and grow.
And I am looking forward to continuing the discussions tomorrow, when I will visit with the
Scranton Area Community Foundation to discuss the Northeastern Pennsylvania equitable
transportation initiative, NEPA Moves, that is working on transportation solutions to connect
residents with opportunity. I look forward to visiting Geisinger Fresh Food Farmacy and meeting
with patients to hear about the innovative "food as medicine" program. I also look forward to
visiting the Cedar Avenue corridor with the United Neighborhood Centers of Northeastern
Pennsylvania to hear about the resident-driven revitalization there.
Let me again thank Pat Harker and all of you for having me here today. I look forward to our
discussion.
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The federal funds rate was close to zero for nearly seven years following the financial crisis, and it likely would
return to zero in a downturn. When nominal interest rates are zero, a drop in inflation expectations can be
especially problematic, making the "real" interest rates that matter for household and business decisions
higher than they would otherwise be and therefore less supportive of growth.