A Conversation with the Fed Sarah Arteaga Regional Director Florida Trust Seminar August 13, 2021 The views expressed are mine, and not necessarily those of the Atlanta Fed or the Federal Reserve System. The Line Up • The Fed • Regional Economic Information Network (REIN) • The Economy and the Monetary Policy Response Functions of the Federal Reserve • Supervision, Regulation and Credit • Financial Services • Monetary Policy 3 Supervision, Regulation and Credit The Fed Supervises: The Fed is one of the regulating • State-chartered banks bodies along with: • Bank and financial holding • The Federal Deposit Insurance companies Corp (FDIC) • International banking organizations • The Office of the Comptroller of the Currency (OCC) 4 Financial Services • The Reserve Banks operate collectively to: • Distribute currency and cash • Process checks • Process electronic payments • The Federal Reserve promotes efficiency in the payment system 5 Monetary Policy The Fed’s Dual Mandate from Congress: • Maximum employment • Price stability Tools the Fed uses to meet this mandate: • Reserve requirements • Discount rate • Open market operations 6 Decentralized Structure of the Fed 12 Federal Reserve Board of Governors Banks & their Branches Washington, DC and Directors Federal Open Market Committee (FOMC) 7 Board of Governors of the Federal Reserve System Jerome H. Powell Richard H. Clarida Lael Brainard Randal Quarles Chair Vice Chair Vice Chair for Supervision Michelle W. Bowman Christopher J. Waller Vacant 8 The Federal Reserve Bank Presidents Charles Evans Eric Rosengren Chicago Boston th 7 District 1st District James Bullard John Williams St. Louis New York th 8 District 2nd District Neel Kashkari Patrick Harker Minneapolis Philadelphia th 9 District 3rd District Esther George Loretta Mester Kansas City Cleveland th 10 District 4th District Robert Kaplan Dallas Tom Barkin 11th District Richmond 5th District Mary Daly Raphael Bostic San Francisco Atlanta th 12 District 6th District 9 The Sixth District Nashville Birmingham Atlanta Raphael Bostic Jacksonville President and CEO Federal Reserve Bank of Atlanta New Orleans Miami 10 Atlanta Board of Directors Claire W. Tucker Michael Russell Founding President and Chief Executive Officer CEO Emerita H. J. Russell & Company CapStar Bank Atlanta, Georgia Nashville, Tennessee Claire Lewis Arnold Chief Executive Officer Leapfrog Services, Inc. Atlanta, Georgia Mary A. Laschinger Former Chairman and CEO Veritiv Corporation Atlanta, Georgia Robert W. Dumas Chairman, President, and CEO AuburnBank Auburn, Alabama Elizabeth A. Smith Former Executive Chair Bloomin’ Brands, Inc. Myron A. Gray Tampa, Florida Former President, U.S. Operations United Parcel Service Kessel D. Stelling, Jr. Atlanta, Georgia Executive Chair Gregory A. Haile, J.D. Synovus Financial Corporation President Columbus, Georgia Broward College Fort Lauderdale, Florida 11 Jacksonville Branch Board of Directors Tim Cost Paul Boynton President Chairman, President & CEO Jacksonville University Nicole Thomas Rayonier Advanced Materials, Inc. Jacksonville, Florida President Jacksonville, Florida Baptist Medical Center Jacksonville, Florida John Hirabayashi President & CEO Community First Credit union Jacksonville, Florida Dawn Lockhart Bill West Director of Strategic Partnerships Chief Executive Officer City of Jacksonville The Bank of Tampa Jacksonville, Florida Tampa, Florida Eddy Moratin Executive Director LIFT Orlando Orlando, Florida 12 Regional Economic Information Network “REIN” 13 ECONOMIC OUTLOOK 14 The Fed’s Dual Mandate • The Fed is pursuing two objectives as given to us by Congress—maximum employment and price stability. • The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the job market, although a stronger economy does help with job creation. • The Federal Open Market Committee (FOMC) has chosen an inflation target of two percent year-over-year growth over the longer term. 15 Summary of the Economic Environment: The July 2021 FOMC Policy Statement • Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses. • The path of the economy continues to depend on the course of the virus. • Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy but risks to the economic outlook remain. Excerpts from the July 2021 FOMC Statement 16 Contributions to Real GDP Growth quarterly, percent, seasonally adjusted annualized rate Intellectual Property Products Government Net Exports Nonresidential Equipment & Software Private Inventory Investment Residential Investment Nonresidential Structures Consumer Spending Real GDP 45 40 35 33.8 30 25 20 15 6.3 6.5 10 5 4.5 0 -5 -10 -15 -20 -25 -30 -35 -40 2018 2019 2020 2021 Sources: Bureau of Economic Analysis; Haver Analytics through Q2-21 17 The Employment Picture • In July, U.S. employers added 943,000 net jobs to payrolls. • The unemployment rate declined to 5.4 percent from 5.9 percent in June. • This measure is down considerably from its high at the end of April 2020. • However, it remains well above its level prior to the coronavirus (COVID-19) pandemic of 3.5 percent. Source: Bureau of Labor Statistics August 6, 2021 18 Contributions to Change in Nonfarm Payroll Employment Goods Producing Retail Trade Services (Information, Financial, and Other) Wholesale Trade, Transportation, and Utilities Professional and Business Services Leisure and Hospitality Government Education & Health Services Total Nonfarm thousands, seasonally adjusted 10,000 5,000 0 -5,000 -10,000 Leisure and Hospitality -7.5 million jobs -15,000 in April -20,000 -25,000 Jul-20 Oct-20 Apr-20 Apr-21 Jun-20 Jan-21 Jun-21 Mar-21 Mar-20 Feb-21 Nov-20 Dec-20 Aug-20 Sep-20 May-21 May-20 Sources: Bureau of Labor; Haver Analytics through June 2021 19 The Inflation Picture • The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. • With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. 20 Summary of the Economic Environment: The July 2021 FOMC Policy Statement • With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. • The sectors most adversely affected by the pandemic have shown improvement but have not fully recovered. • Inflation has risen, largely reflecting transitory factors. Excerpts from the July 2021 FOMC Statement 21 Personal Consumption Expenditure (PCE) Price Index Personal Consumption Expenditure (PCE) Price Index year-over-year percent change, monthly 4.0 PCE Core PCE Trimmed Mean PCE 3.5 3.9 3.5 2.0 3.0 2.5 FOMC Inflation Objective 2.0 1.5 1.0 0.5 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Sources: Bureau of Economic Analysis; Federal Reserve Bank of Dallas; Haver Analytics through June 2021 22 Atlanta Fed’s Business Inflation Expectations Survey Atlanta Fed’s Business Inflation Expectations Survey year-ahead unit cost expectations percent, monthly 3 2.5 2 1.5 1 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-20 Jul-21 Source: Atlanta Fed Business Inflation Expectations Survey through July 2021 For more information, visit: http://www.frbatlanta.org/research/inflationproject/bie/ 23 Jerome Powell, Chair, Federal Reserve Board of Governors “With inflation having run persistently below 2 percent, we will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. We expect to maintain an accommodative stance of monetary policy until these employment and inflation outcomes Chair Powell’s Press Conference are achieved.” July 28, 2021 24 The Monetary Policy Response: • In July, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. • The Committee expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment, and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. • In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. • This assessment will take into account a wide range of information, including: ➢ Readings on public health ➢ Labor market measures ➢ Inflation pressures and inflation expectations ➢ Readings on financial and international developments 25 COVID-19 Resources and Information • Follow these links for the latest COVID-19 updates from the Federal Reserve: • Federal Reserve System Board of Governors: https://www.federalreserve.gov/covid-19.htm • Federal Reserve Bank of Atlanta: https://www.atlantafed.org/news/covid-19 26 Questions? The views expressed are mine, and not necessarily those of the Atlanta Fed or the Federal Reserve System..