View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

For release on delivery
5:30 p.m. EDT
July 11, 2019

Perspectives on the Economy from Scranton

Remarks by
Lael Brainard
Member
Board of Governors of the Federal Reserve System
at the
Community Bankers Roundtable
Scranton, Pennsylvania

July 11, 2019

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.

-2Over 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 inflation, which in turn could lead
to an increasing shortfall of inflation from our objective. 1 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

1

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.

-3addressing 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

-4with 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.