Yeah, probably because that makes the most sense because they have two mics of their own. And this is the podium. I just think... they might have it muted.
I'm going to tell him like three minutes. Chris just went to wash his hands. His pen just exploded on his hand. So he's like, 'I'll be right back.'
Good morning everyone. We're going to get started in about three minutes. So, if you want to grab a cup of coffee and find a seat, please.
Ready to start whenever you guys are ready. If everybody could find their seats, we're going to get started.
So, talk to your team. So, my team... stickers.
Okay, if we can find our seats, we're going to get started.
I wanted to say good morning to everybody. My name is Ryan Erns from the Connor Group and the Dayton Area Chamber of Commerce Executive Board. I want to welcome you to our second government affairs breakfast of the year. I will say that this is a substantially bigger crowd than our first, which is a good thing. I think it speaks to the interest in not just our speaker but in the topic. And when I got here this morning, I looked at all the name tags and I expected to see it being overrun by folks from banks. And that wasn't necessarily the case. And I think that's really good because it tells me that there's a real interest in the business community and the business community understands the role that the federal banking system plays in all of our daily lives. So, before we get started, I wanted to thank our sponsors, AES, and welcome up to the podium Vivian Okonnell from AES to say a few words.
Good morning. AES Ohio is proud to sponsor this event and the series that the Dayton Chamber offers. And Chris and his team put together leaders that we can engage with. So, thank you for your leadership. AES Ohio has been serving West Central Ohio for 115 years, and while our mission remains focused on delivering safe and reliable energy, the landscape that we're operating in is rapidly changing. Today we're navigating three major forces that are reshaping the energy landscape: changing weather patterns, artificial intelligence, and an increasingly complex geopolitical environment. At the same time, we're also in Ohio experiencing unprecedented economic growth opportunities driven by manufacturing growth and large energy-intensive investments including data centers. As your local utility, our responsibility is to ensure that the growth benefits the community as well as protecting our customers. And that's why we have established guiding principles focused around making sure we're protecting our customers, we're being transparent, and we're ensuring that the large load customers are funding the infrastructure they need for us to serve them. Those new investments in transmission and distribution, which is the part that AES Ohio manages, not only supports economic growth but ultimately strengthens reliability and resilience for everyone connected to the grid. Beyond the grid, we are committed to making strategic investments in the community. Having customer assistance programs and also having our people be engaged as volunteers. We encourage all of our people to volunteer to engage with charitable boards. And on your tables, we have our charitable giving at a glance. Our community impact report is linked to that and the other side of the card has information if you'd like to get in touch with us. But thank you for the opportunity to support this series and also for being here today. Thank you.
Two things real quick before I introduce our speaker for this morning. One, Chris Kersner told me this morning that we are live streaming and that stream might be picked up by some national outlets. So, please be on your best behavior. Secondly, I asked Chris like, 'Well, what's the format of this? Is this just speaker? Is it Q&A?' He said it's more of a fireside chat. And when I stood up here, I realized the fireplace is back there.
It is August. So, we don't need the fire anyway. Good point, Beth. Beth Hammack serves as the president and CEO of the Cleveland Fed. She's responsible for all the bank's activities, including those related to monetary policy, bank supervision, and payment services. She has more than 30 years of experience in finance, capital markets, and risk management. She's also served on several advisory groups at the US Department of the Treasury and in the financial industry. Before joining the Cleveland Fed, she was co-head of global financing at Goldman Sachs where she was a member of the management committee. She works closely with US policymakers as chair of the Treasury Borrowing Advisory Committee and as a member of the Financial Research Advisory Committee and the Treasury Market Practices Group, the latter of which aims to advance financial industry best practices. She's the chair of the board of the nonprofit Math for America, a member of the University Hospitals board of directors, a member of the City Harvest Board of Trustees, a member of the Greater Cleveland Food Bank Board of Directors, and a Greater Cleveland Partnership Board Observer. It's a mouthful. So, without further ado, I'd like to introduce our guest this morning from the Cleveland Fed, Beth Hammack.
I'm going to turn it over to Beth here in just a second. But before I do that, I really just want to say welcome to our business community. As you can see, Beth, our business community shows up. In this room, you have a diversity of industries. You have a logistics industry that's in this room, small business industry that's in this room, locally owned companies, health care, financial services companies that truly know what our small business community needs on a regular basis. They're all here. You also have many connections in this room to Wright-Patterson Air Force Base. It is a 15 billion dollar economic impact not only on the Dayton region, but on the state of Ohio and on the country. Truly, if something is made in Ohio, it goes through Dayton, Ohio. There is a connection to Dayton and to our region and our business community is represented here. So, welcome to all of you that are here. Thank you for coming. Welcome to our viewers that are on the live stream. Glad that you can see this. And anytime you want to come to Dayton, please let us know. We'd love to have you. So, with all that being said, we're going to jump right into this. This is meant to be casual. It's meant to be a conversation between Beth and I and we want to open up for Q&A at the end. Beth and I already were talking beforehand and she started hitting me with some great economic input and I said save it. Save it for the chat. Don't get all your good stuff out right now. So, we're going to jump into that now and just have that conversation.
Sounds great. Thanks so much for having me.
You're welcome. So, before I do that too, I do want to recognize two of your board members that are here. I'm sorry.
Gina McFarland-L and Jackie Gamblin, both from the Dayton region. Jackie sits on our Cleveland board and Gina sits on our Cincinnati board of directors. And I know you serve on our business advisory council. And we have a number of other members here who serve in that group. And we have Amy Ryel, I think, is here also from our community advisory council. And so we really appreciate everyone's service. It's, I know we'll get into it, but this is one of the key ways that we learn about what's going on in the economy is through all of your service and all of your input. So, thank you.
You're welcome. Yeah, we do have some business advisory council members that are here. I know I saw Ben Goodstein, Jessica Jones, who are both also on our chamber board, and so they're here. I know Dave McNney's here from our board of trustees as well. So, well represented and we have great leadership that's able to help make sure we're moving our organizations forward.
So, like I said, I want to jump into it because I want to make sure we have plenty of time to hear what's on Beth's mind. So, to start off, Beth, you've made it a priority to tour the district you represent, which includes the Dayton region. You've met with Dayton area business leaders, community leaders. What have you learned in these visits? What has stood out to you about our region, about the Dayton area, and the culture of our business community?
One of my favorite parts of the job actually is traveling around the district and getting to know all the different businesses and all the different communities. And there's a lot of similarities I'd say amongst the different cities but every city has sort of its own raison d'etre. So if you're in Toledo it's all about glass manufacturing. If you're in Akron it's about polymers. If you're in Lexington it's about horses and bourbon. That's also fun. But in Dayton as you talked about there's a lot going on here particularly related to Wright-Pat and related to all the defense industry and growth. And then also there's a huge presence in the healthcare industry here. We spend a lot of time, you talked a lot about small businesses. Small businesses are a critical engine of growth for the US economy overall and we at the Cleveland Fed spend a lot of time looking at small businesses. We run something called the Small Business Credit Survey, which is run nationally for the Federal Reserve system, but we run that out of Cleveland. We have a team of researchers who are out there making sure that we're getting input and hearing from small businesses about how you're experiencing the economy, about are you able to get the credit that you need to continue to grow. One of the things that impresses me across the region, I'd say one of those similarities, and I feel it definitely here in Dayton, is the partnership between the business community and the nonprofit community and how everyone is really working together. I can't tell you, it's again traveling all these different cities, whether it's Erie, Sandusky, here we were down in the southeastern part of the district earlier this summer. Everyone has such amazing pride in their city and I have to say as a former New Yorker having left that, people in New York love to dunk on New York. They love to talk about how terrible it is and it's really nice to be in a place where people are just proud of their cities and really want to work to continue to make it better.
That's great insight, especially coming in from the outside and being able to see that and realize it and pick up on that. I think we see it a lot, but to have it validated by somebody from the outside, that matters a lot.
Yeah, no, it definitely stands out and I'd say that I continue to see the growth in each of these cities and I think this is such an exciting moment for Ohio in particular because it is such a welcoming environment for businesses and because you see all the growth and all the excitement around some of the changes that are happening. We're such a manufacturing-heavy region and with this push now to bring a lot more manufacturing back on shore, Ohio is really benefiting from that.
If you had to say which one of your children was your favorite, I mean, Dayton should be up there, right?
I have two children and so there are no favorites. We love all of our children equally. We love them for different things and different reasons and we're big fans of saying in the family that, you know, fair is not equal. Everyone needs slightly different things and so you have to meet people where they are.
Good answer. Good answer. All right. There's been big change at the Federal Open Market Committee meeting with the new chairman Worsh now leading the committee. Can you take us inside one of those meetings? How are they different under the new chairman? What's being discussed? Is it a different order of events? What's going on there?
So, they're a lot more similar than they're different. We have a format that has been used for a long, long period of time. And actually, the preparation for those meetings starts with events like this. It starts with me being out in the district, me hearing from businesses, understanding kind of what's going on to make sure that when I go to Washington, I can represent what all of you are experiencing and help to set policy that works for everyone in the fourth district. So it starts early, it's all the time being out and talking to businesses and communities to get their perspective, but then I go into real intense prep probably the week before we go into what we call blackout, which is 10 days before the decision comes out. So that's the midnight Friday of the week prior. And I will go deep on economic research. So I get a packet of materials that's known affectionately as the teal book because it used to have a blue cover. Now of course it's online. It's about 150 pages of economic charts. If you're ever really tired and can't fall asleep, you can get historical teal books online and so you can read those and put yourself to sleep. But I have basically a weekend to digest that and it's really a deep dive on what's going on from every aspect of the US economy.
I spend that week with my team kind of thinking through what the key policy questions are. How do we think policy should be oriented? Sometimes there'll be special topics that they'll want us to discuss. And then I fly down to DC on Monday. The meeting starts Tuesday morning, usually somewhere between 8 and 9:00. And in the room we have a format that's pretty similar. You always start out with a briefing from the open market desk in New York. They're the ones who are actually implementing monetary policy. So they're the ones engaging in the markets to make sure that if we want to raise or lower interest rates that that actually transmits into the financial markets. So they give us a broad update on what's going on in the financial markets. Then we get an update from the people who put together that teal book. They give us kind of a verbal summary, call out any highlights, sort of how things have been trending, what their forecast is, how we think the economy is going to progress. Because of course when we set monetary policy it's not just about where the economy is today or where it was a month ago but it's really about where is it going to be in three, six, twelve months and how do we make sure that we have good line of sight to make sure that we're directing things in the right way.
Then we do a go-round. Everyone at the table gets to give their views. So whether you're a voter or not a voter, everyone at the table shares their view of the economic outlook, how things are coming together and what it means. And then that probably takes us to the end of the first day. And then we come back the next morning and we go through and do the same thing again, this full go-round but this time it's on policy. So it's based on what your economic outlook is. What does that mean in terms of the stance of policy and how do you want to set things? We take a vote. That's the only time that you actually know who's voting and who's not voting, and then we head out of the room. That's it.
Chairman Worsh has mentioned, has announced a few task forces that he's launching. What are those task forces? What's the purpose of those? This seems like something new or did it happen before and I just missed it?
No, it is new. This was one of his ideas coming in is he wants to make sure that we're getting the best ideas. One of the things that I love about the committee is you've got 19 people from totally different walks of life, totally different backgrounds representing all different parts of the country. And so you get a lot of diversity of thought and a lot of diversity of opinion, which is really important when you're trying to make big tough decisions. And I think the chairman's view was that there are some big first principles questions that he wanted to ask and he wanted to get even more outside experts in to help think about some of those. So, he's engaged with three experts in five different fields. And I'm going to see if I can remember what the five are. One is data. One is sort of the drivers of inflation. One's about our balance sheet. One's about communications. And I'm phoning a friend.
AI productivity. Which is focused on AI productivity and gosh, how can I forget AI? It's all people want to talk about.
I should ask AI. Why did I forget you? But he's convened these task forces with some really impressive leaders who are going to help give us more insights and think about some of these bigger picture questions. And so to me, it's just another way of helping to think through what some of these problems are to make sure that we're steering the economy the way that we should be.
Sure. And you're our voice there. You represent this area. You represent everybody in the fourth district, right? So, when we are either filling out that credit survey or our business advisory council is meeting with Julianne here locally, that information is critical for you to be able to take back and make sure you're representing what our business community and the people in your region need.
Yeah, absolutely. And for me, one of the most important inputs because I spend a lot of time, we talked about the teal book and all that deep data that we get. That data is sort of where the economy is today or was a month or two months ago. What I hear when I'm out talking to business leaders is how are you going to factor in new information into your decision-making process? And that tells me where the economy is going to be in three, six, and 12 months. And that's what I really need to understand. Again, as we talked about, monetary policy works with a lag. So, it takes a little time for any changes we might make to filter through the economy. And so I need to understand if we make different changes, what's that going to mean for you as a business leader? What decisions are you going to make? Are you going to raise prices? Are you going to hold off on raising prices? Are you going to hire more people? Are you going to have to let people go? What's that going to mean? So that when we're thinking about that dual mandate that Congress gave us of maximum employment and price stability that we have good insight as to how all of the businesses around the country are thinking, their reaction will be so that we can understand what that means.
Yep, that makes sense. So that's how the sausage is made. But now let's get into the policy, right? We want to get into the policy and talk about some of the reasons why decisions go the way they go. In a recent speech, you talked about how the Federal Reserve's goal is a 2% rate of inflation. You also mentioned that the Fed has been missing that goal for five years. How do you think policy needs to respond?
So my view is that we need to act now. I dissented at our last meeting because I believe that we need to act to bring inflation back down towards target. We have that dual mandate set by Congress. Right now I don't see any tension in that mandate. We have a labor market that has been reasonably stable. It may not be as dynamic as we're used to historically. We've had lower job creation. The headline payrolls number has been averaging about 20,000 jobs per month over the past three or twelve months, however you look at it. That's a lower number than we've been used to historically. But we've had a lot of shifts both demographically from immigration that make that number in line with what I see as break even, which is reflected when you look at the unemployment rate, which I think of as a single best indicator of the health of the labor market. That number has been stable. It's been right around my estimate of that maximum employment. It's been in the low 4%. It just ticked down to 4.1, but it's been between 4.1 and 4.3 over the past 12 months. So, you've got a labor market that's broadly stable, right around my estimate of maximum employment, and you've got inflation that has been missing our target for more than five years.
We had made really good progress coming out of the pandemic, getting inflation from above 7% down to below 3%. But more recently, with some of the recent shocks that we've seen, it has gone back up above 3%. And I think it's really critical that we act now to make sure that we can bring inflation back down to target. The longer that inflation stays above our goal, the harder it is to bring it back down and the more pain that's experienced by individuals and businesses across the world over that period of time. When I look at policy broadly, to me, it's not restrictive. When I'm talking to businesses, I hear that businesses are excited to raise funds. They're excited to borrow so that they can continue to invest. They see the growth opportunities, which is great. I want them to continue to see growth opportunities. But if we have too much in that growth, too much in that energy, it could mean that that's putting additional pressure on price increases and that puts more of that inflationary pressure out there.
Do you foresee that goal staying at 2% or do you think it will end up maybe at 2.5% or something like that?
There's a lot of good reasons why we chose 2% and that last speech that you referenced, I went through and referenced a bunch of that history of why we think 2% is a good number. You want something that is above that zero percent. Now, you could in the extreme say, well, zero is great because then prices should be flat, but usually if you're in an environment where you have 0% inflation, you really don't have much economic growth and you want to have economic growth. And so, you want something that's off that zero, but you want it to be at a level that's imperceptible to individuals and businesses. And so if you look back to the period that we had coming out of 2008 up until the pandemic, no one really talked about inflation. No one really thought about inflation. It was running in that kind of one and a half to two and a half range, which is really, that's where we want it to be. Our target is two. That's our goal is to get back down there.
We have a task force that's going to be evaluating inflation, what some of the drivers are behind inflation. And it could be that they think about different ways to measure it. There are a lot of different ways that I think about inflation. Our goal, as we've said it, is the personal consumption expenditures price index. That's what we look at to think about inflation. But there's the CPI, there's the PPI. There are many different ways to cut each of those inflation measures. And so we have one number that we're held accountable to, and I think that's really important because we need something that the public can hold us accountable to that's clear and transparent, and that's 2% on the PCE inflation index. But to make sure that we're doing that job, we have to look at all the broad range of indicators because I recognize that no one number is going to be able to capture what's going on fully. And so I do look at CPI, I look at PPI, which is coming out, maybe already came out this morning. And I look at different cuts within it. So, our goal is on headline inflation, which means it includes everything that people are experiencing, but I tend to look carefully at what goes on in what we call core inflation, which excludes the more volatile food and energy prices, because if you want to think about where
We're going to be in 12 months, where the underlying trend is. Taking out some of those more volatile components can be helpful. But I also recognize that's not what we experience. When you go to the supermarket, you are definitely feeling food inflation. When you go to the gas pump, you are feeling that energy inflation. And so I want to look at the core to understand where we're headed, but I also want to be mindful that our objective is the full experience. And so it's trying to triangulate things, cut it a number of different ways and make sure that we can really deliver on that clear objective of 2%.
Thank you. One of the things our business community watches very closely is interest rates. Keeping interest rates at a reasonable level allows businesses to invest, allows the Dayton area economy to grow. Is that business impact part of the conversation when the Federal Reserve is considering interest rate changes?
It's absolutely a part of the conversation. All of the conversations that I have out in the district, the conversations that my team has with the business advisory councils, with our Beige Book surveys that we do, I use those anecdotes when I go to the room in Washington because I do find that the data is very robust and very rigorous and you want to pay attention to things that have that much depth to them. But I also want to put a human face on it. And so having those stories, having those anecdotes about what individual businesses are experiencing is really helpful. That's one of the things that has brought me to really be thinking that inflation is more broad-based. It's not just coming from one or two sectors. So, when I was out in Sandusky recently, we were talking with a small business owner who said that their insurance premiums have gone up threefold over the past couple of years and that they're now foregoing different parts of insurance and just risking it on their own because those costs are too high. So, when I look at where these pricing pressures are coming from, yes, there's food price pressures, yes, there's energy price pressures, but it's coming in the insurance space. It's coming from the buildout related to AI, all these technological parts. All of those things are contributing and to me that says we've got this broader-based inflation and as my husband is very fond of reminding me, it is my job as part of the FOMC to help get that under control. And so that's why to me we need to act. Now I recognize that raising interest rates can be painful. It can make it more difficult for businesses to borrow funds. But we've got to strike that balance right between making sure that that growth and investment is happening in the economy, but not at too rapid a pace, not at a pace that is going to overheat the economy and make price pressures kind of get away from us.
