Patrick Harker, president of the Philadelphia Fed, and Federal Reserve Vice Chair Richard Clarida spent the morning in Camden, which squats in the shadows of Philadelphia’s downtown skyscrapers but has the lowest median household income among U.S. cities.
The dichotomy of Philadelphia’s gleaming office buildings and destitute people on the streets of nearby Camden underlines the limits of Fed policy, even as most policymakers see the central bank’s dual mandate of price stability and maximum employment as having been met.
In July, the U.S. economy will celebrate 10 years of expansion, the longest on record. Yet at events in Camden and Philadelphia, the policymakers heard that while some progress is being made linking employers and workers, many Americans continue to struggle.
“What drives the racial wealth gap is income and the fact that for the last 50 years we’ve had crisis-level unemployment in certain demographics,” said Omar Woodard, executive director at GreenLight Philadelphia, a group focused on alleviating poverty, speaking on one of the Fed’s panels.
Camden’s population is 45 percent African-American, according to the U.S. Census Bureau.
Unemployment numbers draw out the divide across the country. Black U.S. unemployment stands at 6.7%, far higher than the more than 49-year low overall for Americans of 3.6%.
Friday’s events were the latest in a series of “Fed Listens” events that Clarida held around the country while the Fed considers whether to change its approach, for instance by keeping interest rates lower for longer to boost inflation expectations – something that might help drive growth.
It is unclear how directly the policy review will answer criticisms that the Fed has raised interest rates too much. President Donald Trump has repeatedly lambasted the Fed for raising rates, saying that it is holding back growth. The Fed, after hiking rates four times in 2018, has put any further rate increases on hold so far this year.
The Fed took extraordinary steps, including buying bonds, to support the economy in response to the 2007-2009 financial crisis, but it has been criticized both for doing too much and too little.
“I think we just have to be honest, when people ask us what’s limiting economic growth, it’s not monetary policy,” but other issues, including employers unable to find qualified employees, Harker told reporters.
The Fed is not planning to release the results of its current policy review until next year, but policymakers are clearly focused on whether they can effectively deal with the next recession with little room to lower rates from the current 2.25-2.50% level before they hit zero.
Tame inflation below the Fed’s annual target rate of 2% further complicates matters, making it, in theory, less likely that households and businesses will support the economy by spending during recessions because of diminished worries that their cash will lose value.
“Obviously if inflation is running below our 2% target, unemployment is low and wages are growing – seems to be a good thing,” Harker told reporters. But he quickly warned of the dangers of falling inflation. “That starts a spiral that’s hard to turn around,” Harker said.
In recent speeches, Clarida has argued that inflation is less responsive to lower unemployment than in the past, a view that may lead the Fed to stimulate the economy more aggressively and lower rates faster in response to downturns.
Pinning inflation expectations at that 2% level is as important as ever, he has argued, because it may be even harder than in the past to tamp down out-of-control expectations of price hikes without damage to the economy. Camden’s unemployment rate fell to 4.1% in March but it has ticked up from lows last year.
Central bank officials toured facilities of a nuclear fuel and waste management company in Camden that is doing on-the-job training for new employees and visited the Leadership, Education, and Partnership Academy University School, which is teaching robotics, engineering and computer coding, and enrolling high-school students in college courses before they graduate.
Students talked about wanting to see poverty alleviated in their community and showed the central bankers flying drones, video game machines and other projects. Harker, an engineer, told a teacher to pitch a student’s water-purification project on “Shark Tank.”
In a speech later, Harker said the Fed wants to make sure “we’ve got the right goals in place; that we’re still measuring the right things, and that the tools we use are still the best ones for the job.”