Fed Gov. Lael Brainard on the longest shutdown in history
Fed Gov. Lael Brainard on the longest shutdown in history
Government shutdown or not, the Federal Reserve is still open for business. (It funds itself, for the record). The upcoming meeting of Fed officials on Jan. 29 and 30 will likely be much dissected, particularly the conversation on interest rates.
Dr. Lael Brainard currently serves as a member of the Federal Reserve Board of Governors and will be at that meeting. She spoke to Marketplace host Kai Ryssdal; the following is a full transcript of their conversation, lightly edited for clarity.
Kai Ryssdal: I want to start off with an easy one, because it’s not that often that you get a member of the Board of Governors of the Fed on the line. What do you do all day?
Lael Brainard: Well, among other things, stay very focused on the health of the U.S. economy. Try to gauge — through a whole variety of different ways, through contacts on Main Street and visits that we do all across the country, as well as the data, as well as the financial markets — try to see just how healthy the U.S. economy is. And that helps inform all the policy decisions that we make.
Ryssdal: How healthy is the American economy right now?
Brainard: Well, generally speaking, the labor market is extremely healthy. It’s the strongest we’ve seen it in a long time. We’ve got the lowest unemployment rate we’ve seen in almost 50 years. And we’ve got — our share of the population that’s working again is really where we had seen it pre-[financial crisis]. We’re seeing that strong labor market spread to groups that have traditionally had the greatest challenges in labor markets. So we’re seeing historically low unemployment among African-Americans, for instance. And wages, finally, after a long period of not moving, are now up at 3 percent. So the labor market looks good, and the U.S. consumer has been pretty resilient. But there are some risks out there.
Ryssdal: Yes, so let’s get there, right? Because while the economy may be strong, there is no small amount of — I’m going to go to the politics first. There’s no small amount of political tsuris out there right now. You’ve got the shutdown, you’ve got globally Brexit. You’ve got discontent in Washington. Where does that fall on your scale of things to worry about?
Brainard: So that is the list of risks that I’m being very attentive to, that I’m sort of waiting and watching. The shutdown, let’s start with that. That means pain for a lot of families that are counting on those paychecks. So, you know, that’s going to really make a lot of stress for a lot of households that need to be paying their mortgages and their grocery bills and their medical bills. And there’s just uncertainty about how long that’s going to continue.
You’re right that there is other uncertainty out there. People are wondering what’s going to happen with trade and China. And that’s a big deal for a lot of American businesses that are sitting on the sidelines thinking about where their supply chain should be and whether they should make investments. So that’s another big source of uncertainty that we hear a lot about.
And then, you know, further afield, as you said, Britain and the votes that they’re having in Parliament about their relationship to the EU —that’s another source of uncertainty.
So all of those things are risks that if they were to materialize would be negative for the economy. We’re not seeing as much risks out there that that would be a positive surprise.
Ryssdal: Positive risks, yeah. But look, the point is that those risks are materializing, right? The government is shut down. China is slowing. Brexit is, I mean, who knows where? As people listen to this interview they’re going to be looking and listening for signs that perhaps there is more trouble to come.
Brainard: So I think you know we, certainly for my own part, as I look at that set of risks, you know, there are things that could get resolved in a very positive way. If we had a good trade agreement come through that really fixes some of the issues, that would be seen as as a boost. Obviously the quicker people in the federal workforce get back to work all over the country, the quicker they’ll get their paychecks and the quicker that source of uncertainty will be lifted.
So it is a set of downside risks right now with an economy that’s been pretty healthy, but, of course, as you say, you know, the longer these drag on, the more I worry that they pile up and they really materially weigh on consumer confidence, business confidence, and then start to work their way through actual activity in the economy.
Ryssdal: The line from economists and members of the Board of Governors — including past Chair Janet Yellen and, I think, Mr. Bernanke said this bunch, and probably Chair Powell has said it — you know, economic expansions don’t die of old age. What it takes is a shock. Are we looking at a shock?
Brainard: Well, you know, our job is to provide some stabilization to the economy. And in that sense we’re in a good place. You know, we have some time. We can wait and watch. Be vigilant. We have some capacity to buffer the economy. So right now, again, you know, we are at where, you know, Congress wants us to be in terms of: We’ve got target inflation of 2 percent. We’ve got a strong labor market. And now we have that capacity to sit back and carefully watch how the economy reacts to some of this uncertainty and be in a position to be able to to provide that stabilizing force.
Ryssdal: Last question on the politics of the American economy, and then I’ll move on to something else, but it’s relevant here that you have been around the politics of the American economy for a good long while. You’ve been in Washington for for a number of years, even before your service on the Board of Governors. Have you ever seen anything like this?
Brainard: Well, you know, every time that the economy gets to a shutdown or a debt limit, you really do sense that desire from Americans across the country for the government to function well and to be predictable, and I think that’s what we’re seeing today. People want to go back to work. They want to get their paychecks. This is affecting communities all over the country. And so, I think there is just a general desire for the U.S. economy to stay on that resilient track and for government to be a part of the solution.
Ryssdal: Let me ask you a question about sort of the larger issue of financial stability in this country. You chair, I believe, the Fed’s committee on financial stability, right?
Brainard: I do.
Ryssdal: As you look at the big banks being bigger than they were after the crisis and profits coming in, do you have a level of concern about too big to fail and systemic risk anymore in this economy?
Brainard: Well, I think we always have to be adjusting our framework and our regulatory tools to make sure that the banks are holding really resilient and thick buffers of capital to absorb losses, thick buffers of liquidity to make sure that we don’t see the kinds of runs and the kind of damage to Main Street that we saw in the crisis. So we’re very active on that front. I certainly have been a proponent of making sure that our banks have really robust risk management, really robust capital. And we also have some tools this time around where we can ask banks to build more resilience as financial markets get a little stretched.
Ryssdal: This is kind of a subjective question, but do you suppose the Fed kind of writ large is still scarred by the crisis, and how grave it was?
Brainard: Well, I’d say it a little differently. I think we learned a lot about how much more vigilant we need to be on regulations and on consumer protections from the crisis. And we learned a lot about ways that our monetary policy can respond when a really deep crisis hits. And so, you know, we’re a different Fed today than we were perhaps 10 years ago. We’ve got a lot more tools. And we also, I think, are a lot more vigilant.
Ryssdal: You’ll notice that I haven’t asked you about interest rates or the dot plot or any of that good stuff that comes up every time you all have a meeting, which is coming up in another 10 days or so. And I haven’t because that gets plenty of coverage. But the question I want to ask you about that is, is too much attention paid to every muttering of yourself and your colleagues on the board and your statements?
Brainard: Well I certainly think that, you know, it’s important for us on the monetary policy-making committee to try to communicate in a way that the public understands how new developments in the data will affect, you know, how the outlook is likely to evolve and what that means for monetary policy. So rather than reacting to every new sentence over time, if we’re doing our job well, I think we would hope the public would understand and react to data similarly as we do and sort of understand that monetary policy is positioned to sustain the expansion, that it can be patient. And, you know, that we are actually achieving what Congress asked us to do, which is to be at full employment and to get inflation, you know, at a stable 2 percent level.
Ryssdal: Do you suppose you don’t get enough credit for actually doing what Congress told you to do?
Brainard: Well, it’s a hard job. It’s a big challenge. And you know I would expect us to be held accountable for what is — you know, we do touch every household in America with our policies. Every American household is connected to the financial system. And that’s a very big responsibility. So no, I expect to be held accountable, and I expect to have a really good debate about how we exercise the policy tools Congress has given us.
Ryssdal: A question here about data, since you’ve mentioned it a couple of times. With the government shutdown, you are not getting the data tools that you usually have. And yes, the Fed has its own economists in it, and it does do some gathering of its own information. How big a problem is it for you now that we are in a position where we are arguably knowing less every day about the American economy thanks to the shutdown?
Brainard: So it’s certainly very important to us and to businesses around the country, households around the country, to continue to get that stream of data that gives us a kind of high frequency sense of just how robust consumer sales are, for instance. The jobs report, as you know, is extremely important and that one we have been getting. But yes, data is vital for business decision-making, for household decision-making, and of course for policy makers. So we certainly rely on it.
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