Raphael Bostic, the new president of the Atlanta Federal Reserve Bank, comes into the job at a touchy moment both politically and economically.
He also comes to it with a distinctive background and perspective.
Bostic, 51, took the Atlanta post June 5 after the retirement of Dennis Lockhart. He is both the first black and first openly gay president of a regional Federal Reserve Bank. He has a Ph.D in economics, but he double-majored at Harvard, getting a second undergrad degree in psychology.
His resume includes stints at the Fed, in government and in academia — most recently at the University of Southern California.
So his perspective may not be quite that of the typical banker.
“What I think it might mean for the institution is the possibility that some different ideas and some different perspectives might be brought into the conversation … How that will shape the ultimate outcome, I don’t have a really good sense yet.”
The Fed, responding to a long drop in the jobless rate and hints of renewed inflation, has started raising benchmark rates again, despite sporadic criticism from political quarters including the Trump White House.
Bostic is on the Fed’s rate-setting body, the Federal Open Market Committee, but he will not have a vote until next year.
“I am not wedded to any policy pathway,” he says. “I will allow myself to be informed by what the data show us. And not just the hard data, but what I am hearing by my ears on the street as to what’s going on.”
Bostic recently spoke with AJC reporters Michael E. Kanell and Russell Grantham. The interview is edited for length and clarity.
Q: How did training that included a psychology degree inform your perspective as an economist and as a Fed president?
A: It’s funny – I came to economics through psychology. I was a psychology major first and then came to economics, because I actually liked it, which is a funny thing, right?
But I think psychology has been very helpful to me because it keeps me mindful that economic models are just models. And that there is a human element to decision-making that isn’t always as neat and as clean as the economic models would like it to be.
Q: Is there some way in which the accepted models are wrong from a psychological perspective?
A: Economics is generally built on the idea that incentive structure will cause people to choose some things over other things. What psychology tells us is … people are imperfect. If we could understand the nature of those imperfections, it would allow us to sharpen our expectations of what is going to happen in the future.
Q: Is there some way that the ‘collective psyche’ would move economic decisions in a different direction?
A: One of the puzzles, if you look at the University of Michigan consumer confidence survey – or any of the surveys about consumer sentiment or confidence in the economy – they are all at very high levels, right?
Typically what happens is if confidence goes up, spending goes up and we haven’t seen that.
So the question that we have to ask, is: Is this temporary? Is it transient, something that is idiosyncratic to a certain period or are we seeing something more fundamental.
Q: Do you have a guess about what is driving the disconnect?
A: I think there are two things. One is that the Great Recession was really shocking to people and that it caused people at a very basic level to understand their vulnerabilities.
I think that has led people to be less carefree. Because even if you weren’t foreclosed on, just about everyone knows someone who was foreclosed on.
In the psychological literature, (it’s shown) that people anchor on bad events more intensely than they anchor on good events. So the bad things are going to stay in your behavior space, stay in your mind-set for a long time. And the Great Recession is as deep a bad event as we’ve had for a long time.
And the second thing is, a lot of concern about job stability, something that played out in the political context. … I think people are starting to ask the question, is technology coming for my job next?
I think a lot of the discussion in this past election was around this. Coal, is coal coming back? I think it’s unlikely, but the consternation and the fear was visible. It was right there for everyone to see.
Q: But if that’s the case, shouldn’t the productivity numbers be a lot stronger?
A: In terms of productivity, as a technical matter, you are correct. As a practical matter, what we’ve learned in the last twenty years is that it’s often difficult to know how to measure things to find the productivity.
Q: And with the unemployment rate low, why aren’t we seeing the wages that real full employment should produce. Is there something else going on? Or are we really not at full employment?
A: This is a puzzle. I actually don’t have an answer to that question.
I asked (the Atlanta Fed) board, are you seeing wage pressure in your businesses? Half of them said yes and half of them said no. So I think there are many different things going on at the same time and they are interacting in relatively complex ways.
You go sector by sector and I think you get different answers. How it all adds up into an aggregate? That’s the part that I am going to have our staff try to tease out so we can tell the story.
Q: But when there isn’t that upward pressure on pay, how to decide whether to keep raising rates?
A: I hear that every day. My approach is going to be, just take the data as it comes.
I am not wedded to any policy pathway. I will allow myself to be informed by what the data show us. And not just the hard data, but what I am hearing by my ears on the street as to what’s going on.
In the financial crisis, it is my sense that there were people on the street who had some pretty good hints about what was going on before it ever showed up in the data.
Part of my job is to go out and talk to as many people as possible. And really listen.
Q: How do you argue to people that the Fed should be separate from politics?
A: When the Fed was established it was meant to be independent. There are political appointments, but their terms are 14 years. So the terms are such that, once they are confirmed, they then can act as if they will be independent of the political environment. It is structurally designed to be independent.
In a political context, your consideration is far more parochial. ‘I need to get elected tomorrow.’ And what’s the best way to get elected tomorrow? Give me a huge stimulus right now. We would wind up with a highly volatile economic environment.
There may be short-run benefits, but it will undermine our hope for long-ruin, consistent, stable growth.
What you want is the people who have to make judgments about that to be insulated from, or inoculated against, tomorrow’s headline.
Q: Does that apply to the other half of the Fed mandate, to the jobs mandate?
A: They are closely connected. It’s a dual mandate, which means we have a tension in our policy space, but they are connected. The level of price stability you have will affect jobs and have a clear impact on employment.
“I am not wedded to any policy pathway. I will allow myself to be informed by what the data show us. And not just the hard data, but what I am hearing by my ears on the street…”
— Atlanta Fed President Raphael Bostic
WHAT IS THE ATLANTA FED?
The Federal Reserve is the nation’s central bank, with a board of governors in Washington D.C. and 12 regional banks. The district based in Atlanta covers all or parts of six states. The Atlanta Fed’s offices are on Peachtree Street in Midtown.
Created by Congress in 1913, the Fed sets monetary policy, supervises banks and provides cash and transfers to the banking system. The Fed employs what is thought to be the largest collection of economists on earth, sponsoring and producing a regular flow of research papers.
Regional banks also regularly report on economic conditions in their districts.
Most high profile is the Fed’s Open Market Committee, which sets a benchmark interest rate that influences the direction of consumer rates on loans, mortgages and savings accounts. The presidents of the regional Feds cycle in and out of that committee and serve as chief executives of their district bank.
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