Good morning everyone. Thank you all for coming. My script actually says thank you for braving the elements, but there's no elements to brave. Everything is fine. Welcome. For those of you that did brave the elements, you're in for a special conversation this morning. We have quite a few new attendees, first-time folks to the round table. Welcome. If you like what you see, like what you hear, you can see myself or Heather Johnson about roundtable memberships. We'd be happy to talk to you about that. Before I turn things over to Dr. Painter, as always, I want to thank our sponsors for many, many years: our long-standing premier partner PNC Bank, our platinum partner Eagle Realty Group, our gold partners Brandy Corp, Hills Properties, Kroger, Neyer Properties, and North American Properties. And as always, to our 60 plus board members whose smiling faces you've been seeing on the side panels here all morning, thanks to them for all that they do. And finally to our roundtable sponsors, five strong. That is all I have. I'm going to get out of the way and let the real conversation begin. To do that, I want to bring up to the stage our academic director, our board chair professor of real estate, Dr. Gary Painter.
Thank you very much. I'm really excited to be here and I'll go ahead and invite you up as I introduce you. This is really exciting to have our president here with us today, our Beth Hammack. I'm going to give you a little brief bio. I know we have a lot of students in the room who are finance majors and real estate majors, so you'll really appreciate her background. I also wanted to thank our president for wearing UC colors today. With all the decor, how could you not? Her background, she's only relatively recently come to the Fed. It was about 15 or 16 months ago to join as the president and chief executive officer of the Cleveland Fed. That means she's responsible for all the activities related to monetary policy, which we'll talk a little bit about since there was an actual vote two days ago, bank supervision, payment systems, the nitty-gritty to the high-level monetary policy. She worked in New York for over 30 years in finance and capital markets, risk management. Most recently, she was at Goldman Sachs leading or co-leading their global finance. I also like the fact that she goes beyond that. She's worked with US policy makers at the Treasury. She is the chair of the board for the nonprofit Math for America and is also a member of the City Harvest Board of Trustees. We appreciate your vast engagement. I know bios are uncomfortable, but I'm happy to share it because I wanted to share with everyone here what all you do. Now, as a new Fed president, we had the privilege of hosting Raphael Bostic, who was a longtime colleague of mine, and I remember when he started as Fed president, he was touring the whole region for the Atlanta Fed. I wondered if you could share a little bit about what your first 15 or 16 months have been like in terms of getting to know the region and how that informs what you do in your job.
Yeah, well, thanks so much for having me. This is such a great venue and what a beautiful setup to be able to participate in. I do love that you see colors everywhere. It feels a little bit holiday, but it totally works. As a Fed president, part of my job is to represent the region, and the Cleveland Bank is responsible for what we call the fourth district, which covers all of Ohio, Western Pennsylvania, Eastern Kentucky, and the northern panhandle of West Virginia. So that's our region. Coming to this region from New York, I had a lot of learning to do. My husband grew up in Cleveland, we have family there, so they gave me a good inside view as to what's going on in northeastern Ohio, but obviously the region is pretty diverse. For me, being out and traveling around the region is really critical to get the insights as to what's happening on the ground. I try to come to Cincinnati and Pittsburgh, we have branches in each of those locations, at least once a quarter and connect with business leaders. I got in late Wednesday after flying from Washington from the FOMC meeting, spent some time with our team, we had a happy hour yesterday, had a breakfast with a local business leader, met with two different meetings with business leaders, did some more time with the team, events like this to connect with people. We'll have a roundtable lunch later today, some more one-on-ones. When it's winter and colder, they usually send me on tours of businesses that are indoors. The last time I was here in June, we did a nice tour going around the Over-the-Rhine district, learning about the rehabilitation that had happened there. We got to stop in at Graeter's, which is always something you have to do in Cincinnati, and got to see a local bar and some restaurants and understand what's going on in the region. For me, those conversations with the business leaders, whether it was the Graeter's family, the woman who owns Zula, the gentleman who owned Thunderdome restaurants, it was really just hearing how they are approaching their business, how they are thinking about planning, input costs, hiring, whether it's easier or harder to find talent right now. All of that is great insights for me in helping to make the national data and the regional data come alive. I bring those stories and anecdotes to the FOMC meetings in Washington to help convey what everyone in the district is feeling and thinking about.
Well, our bankers in the room probably have a good sense that there is a Cincinnati branch of the Cleveland Fed. Not everybody does. I see your team is here, some from Cincinnati, some in Columbus. What does the branch here do? And how can we collectively, if we're not being supervised, connect with the Cincinnati branch of the Cleveland Fed?
Yeah, so as you referenced, the Fed does more than just monetary policy, though that is what most people know us for. We do set interest rates and that's a critical component of the job, but we have four other functions that tie into that. One is financial stability, looking across the landscape to see if there are fragilities or potential vulnerabilities in the system and making sure we're helping to set policies, whether it's regulatory policy set by the board in DC or other facilities to help ensure things are stable in normal times, but also if there is a problem like during the pandemic when it was clear there was much more need for cash, we have the tools to put in place emergency facilities as well. Closely related is supervising and regulating the banks. Understanding that we have a strong banking system allows credit to be flowing to households and businesses, which enables them to grow and invest in their companies. Making sure we've got a banking system that's strong and stable, which I have good confidence it is right now, but that's an ongoing responsibility. Another one is consumer protection and community development, spending time to get to know not just the businesses in the region but also different community organizations. Our mission is to help make sure we have an economy that works for everyone, all up and down the income spectrum. So talking to large companies, small companies, individuals, people who are struggling, understanding how they're putting things together. And the last one is running the payment system, whether it's the Fedwire for bank-to-bank transfers, clearing checks, issuing Fed notes, which most of you would think of as cash. We're responsible for all of that. Within our Cincinnati branch, we do have a very large cash operation. We have a vault where we keep a fair amount of money in the basement. Banks will send cash into us from various locations, we'll credit their accounts, check it to make sure it's fit currency, and then save it and distribute it back out as it gets ordered. We also have a number of supervisors who sit in our Cincinnati branch who spend time getting to know all the banks in the region and getting their perspective. And we've got professionals in our regional economics and community development teams whose job is to really connect with local businesses and community organizations so we get a good picture of what's happening here.
Wonderful. Well, it seems like the Fed is often in the news, but of course, a week like this when you actually have an FOMC meeting, it's even more in the news. Is there anything that you can do to take us behind the veil and talk about the deliberations that happen as you're trying to fulfill the dual mandate of the Fed?
Sure. I'll give you a little bit of a look behind the scenes as to what happens in a meeting. The process starts about a week, maybe 10 days before the meeting actually happens. The Friday after Thanksgiving was when our blackout period started. When that happens, the team in DC releases what we call the teal book. The teal book used to be a paper book with a teal cover, it's now electronic, but it does have teal blue banners in various places. What it is is basically the Washington staff's forecast for the economy. It's very detailed, about 150 pages with lots of charts and graphs, different analysis, and it gives you a thorough look at how the economy is shaping up and how we think it's going to project, because the job in setting monetary policy is not to have a good read on where the economy is today, but on where it's going to be 6 months, 12 months, 18 months from now. As we always talk about, monetary policy works with long and variable lags. Like Wayne Gretzky said, you have to know where the puck is going, not where the puck is right now, to make sure we're setting policy accordingly. I spend the time in between meetings, all of these conversations are helpful for me in terms of putting that picture together. Then that week before the meeting, I spend in intense meetings with my research staff. In Cleveland, we have about 70 to 80 PhD economists who help unpack different parts of the economy. We run what's called the Center for Inflation Research, so we have a lot of great data about how the inflation picture is shifting, what some of the different components are, how they are moving around. I spend that week before really spending a lot of time with that research staff. I'll do a few listening calls just to hear from different businesses and community leaders about what's going on. That week is really unpacking the economy: what's the labor market going to do, what's inflation going to do? Right now, we've been in an environment where the labor market has been gradually cooling, the unemployment rate slowly ticking up, but we also have inflation that's been running above our target, closer to 3% than our target of 2%. We've been missing on our inflation objective for about five years. Trying to balance both sides of the mandate is really challenging. Then I fly down to DC. After this week of spending all this time thinking about what we're going to do in the meeting, the staff in DC will present the committee with basically three options of what we're going to do. You've got 19 participants sitting around the table, it could be a little bit unwieldy if you were making last-minute word editing decisions in the room. We'll get three options, we'll have an opportunity to comment and send some feedback on the language. The chair, this chair, and I'm sure every chair is different, will do a round of calls with the 19 or 18 other participants to get their views of how they're thinking about things going into the meeting. He tries to really understand where the consensus is from the group as we head into it. When we head into the room in DC, I fly down usually on Mondays. The meeting starts early on Tuesday and you really don't want weather to be a factor in not showing up at the table. So we come in Monday night. Tuesday we start in the morning at around 9:00, give or take. By the way, all of this is not giving out any state secrets. We release our transcripts of the meeting with a 5-year delay, so you can see this whole flow of what happens with a 5-year delay if you want to read the 300-page transcripts. The meeting starts out typically with a briefing from the New York desk. The New York bank runs the open market desk, which engages with the markets to really implement monetary policy. They'll give an update on what they're seeing in money market conditions, what market expectations are, how financial conditions broadly are supporting the economy. We'll have a bit of a back and forth, go-around questions for them, a little bit of discussion. Then the staff who put together that teal book will give us an update both on the domestic economy, the international economy, and some of the monetary policy options. Again, we'll have a go-around and a conversation there. At that point, we usually break for lunch because it is a long day. Then we'll come back together and all 19 participants will give their viewpoint on where the economy is. People speak from anywhere from three to 10 minutes, on average four or five minutes, giving some synopsis of how you see both the national and your regional economy. Then we break, we go home, you sleep, you think about everything. In the morning, we get back together on Wednesday at around 9:00 a.m. and we'll do the same thing again. We'll go around the table, all 19 of us, and talk about what our view is on what the information we said yesterday on the fundamentals of the economy means for policy. Everyone will go around, we'll vote on the policy options. There are 12 of the 19 participants who are voting members of the committee, and those 12 will vote on the decision. We usually wrap up around 10:30 in the morning. The release is public at 2. The press starts coming in somewhere between 11 and 11:30, they get an embargoed release so they can get their stories ready, and then they'll have the press conference with the chair at 2:30. So behind the veil, that's the whole process.
I don't know how many people have read those transcripts, but now maybe AI could help us a little bit.
Not many. I mean, if there's helpful things because you can see the actual words of deliberations, sometimes like around the 2008 or 2020 deliberations, those can be interesting insights.
Absolutely. Well, one of the things, if we can for a moment think about the here and now. You mentioned data and the amazing data the Fed has. I've told many people in the room, I went to grad school because I wanted to work at the Fed. That's why I went and got my PhD in economics and a minor in finance. I've always been jealous of the data the Fed has. But what I'm curious about is, we've had a couple of months where certain official government sources have not released data. I was curious if that at all hamstrings the Fed team or do you have so many other data sources that the official channel is not really that consequential? Are you hamstrung at all by some of what's happened at the federal level in terms of less data?
Well, more data is always better. We're always looking for as much information as we possibly can find and then trying to separate the signal from the noise. Not having that BLS data, which is really the gold standard of data, certainly has been a factor. We've talked a little bit about there being a little bit of a fog in how we're seeing things now, and part of that is that we don't have as much data as we typically would. Having long series that are stable and similar is much more valuable than having new things that come in because you just can't contextualize them. It certainly has been made challenging, but we do have lots of other sources of data that we look at. Particularly on the labor side, there's a lot of data that we can use to see how things are progressing. We look at the JOLTS data, the state weekly unemployment numbers, the unemployment claims that come out, the WARN notices. Our staff in Cleveland really unpacks those mass layoff notices to see if there is a signal, if things are trending in one direction or another. On the price side, on the inflation side, it's a little bit more challenging to get data. There aren't quite as many reliable sources, but we'll talk with businesses and understand how they're thinking about their pricing power. We get spending data, we talk to different credit card companies and understand what they're seeing in their data, which gives us an aggregate view of how spending and consumption might be trending. So we have a lot of places we can look, but we are very grateful that over the next three weeks we'll be getting a lot of data, more than three weeks worth of data in that time, which will help give us better visibility as to how the economy has been trending.
Great. I know the other issue that's been in the news is about the pressures that get put on the Fed by any kind of political administration. This is not new, it's happened for decades upon decades, and in this administration certainly also puts pressure on the Fed to move in one direction or the other. Does that affect the conversations at all within the FOMC, or is it just like we have our blinders on data and what we're going to do 6 months, 12 months, 18 months?
Yeah, I mean, having an independent central bank, if you look across the globe, you see that economies that have independent central banks are able to sustain better employment and inflation outcomes over the medium and longer term. It allows you to make decisions without thinking about short-term political pressures. That's really the job, the goal is to make sure that when we walk in the room, we're focused on the data, we're focused on the stories and the experiences of the people across the country, and making sure that we're setting policy for that. There is certainly a lot of noise. There are things that are happening right now that are completely normal. Having the president or other senior officials talk about their views on the economy, what should happen with rate policy, that happens all the time. The president in August appointed a new governor, that's a standard process, that happens all the time. But there are some things that are different that we hadn't seen before. The new governor maintaining his position and affiliation with a different part of the government, that's something novel that we hadn't seen. And the president trying to fire a sitting governor, that's something that we hadn't seen. We take all of this in stride. The important thing is that when we walk in the room, when I walk in the room, I'm squarely focused on the data, I'm squarely focused on the experience of the people in the district and across the country to make sure that we are setting policy so that we can have an economy that's continuing to grow and perform.
So I have a couple more questions. Those of you who have questions in the audience, please get ready. We have two of our students who are going to be carrying mics around so you can flag them down even now. I wondered if we can move from the national to the local. When I've looked at some of the data over the last 6 months, it seems like District 4 is doing pretty well relative to some of our other partner districts around the country. Why do you think that is? And what can we do in District 4 to sustain our regional economic development?
One of the things I love about the fourth district is it's really a microcosm of the country. If you look at the sectors that we have represented here, we are a really nice mini view of what's going on all across the US. We've got eds and meds, great universities like UC and others, great healthcare centers, and that's a big component of the economy. We've got agriculture, the rural sectors of the economy, energy production, particularly in southeast Ohio. You've got good manufacturing, a lot of that in the northeast part of the region. You have this transition from manufacturing to the services sectors. You also have the booming technology place, with focus on data centers and AI and all these other things. So you really have a nice picture of what's going on across the country within just the fourth district. One of the things that has always struck me since coming to the region is just how well the private sector, the government sector, and the nonprofit sector really work together. Whether it's Cleveland, Cincinnati, Toledo, Akron, Columbus, Pittsburgh, wherever you are, what I find is people who are really committed to their cities and committed to ensuring that their cities are as vibrant and growing as they can possibly be. That's taking some of the real estate sectors to look at development: how can we bring in more housing, how can we help find affordable housing, how can we create new districts where young people want to be, how do we get recent college graduates to want to stay in Ohio to help join the workforce? The fourth district overall's biggest challenge is really demographics. We don't have that many new people moving into the region and we have an aging population. The bright spots are certainly Cincinnati and Columbus where we see more growth than in other parts of the district, but that's a pretty consistent challenge that I hear across the region.
Yeah. So you were in New York for more than 20 years. I was in Los Angeles for more than 20 years. So when I first came to Cincinnati, I was like, well, one thing I'm not going to have to worry about is affordable housing issues. So I come and all of a sudden it's like, oh my gosh, affordable housing, this is the biggest issue we've ever faced. Coming from those coastal regions which have suffered for decades because of maybe less than stellar policy, now it's upon us here in these higher growth places like Cincinnati, Columbus. Now we have less affordability than we did before the pandemic. What do you think we can do collectively as a region, given the data that you've looked at and given the partners that you've talked to, that can help facilitate a region that was relatively affordable to maintain that affordability and yet still grow effectively?
Yeah. So we do talk about the affordability issues, and it's true certainly in housing and in other parts of the economy as well. What I'll say is that even though prices have risen here more than the national average, on an absolute basis, Cincinnati still is a reasonably affordable place to be, and there's a great quality of life here. I still think that it will be a place that's able to attract and retain people to come stay, live, and work in this area. When I'm out traveling the district, when I was in Columbus a few months ago, we were sitting down talking with construction companies and builders and trying to understand what are some of the impediments. Not all of them are things the Fed can fix. Interest rates is certainly one component, and we do have some control over that, although we control the very front end of the interest rate market, which is not really what mortgage rates are driven off of. They're driven more off the 10-year rate, so those two things can move differently at times. But that is a place that we watch to understand. When I was in Columbus talking with some of these builders, they expressed that while interest rates are one component that's been inhibiting some of the investment and growth, the price of materials and labor and the fact that those have risen so much in the past couple years has also been an inhibitor to growth. The labor supply is a real issue in this region, particularly in building and in the skilled trades. Finding people who can do sheetrock, plumbing, HVAC, all of that is a challenging issue. My team has spent time in our community development work thinking about workforce development, what are some of the training programs that help to make sure that you get people in those right jobs. Thinking about whether college is a place where everyone needs to go, how do we think about technical schools and high schools and other partnerships. Whether it's in the construction or in other areas, I see a lot of programs at community colleges. We were touring Lorain County Community College up in Northeast Ohio, and they have a couple great programs that help train people for medical professions, whether it's nursing or other healthcare technicians, and they also have clean rooms. They've been trying to get people ready for chip manufacturing. I imagine that we can look at some of those programs. Fiscal and government policy is better suited to putting in place those types of programs. Monetary policy is a pretty limited, blunt tool, but we do try to study what's happening in those different areas and try to put out ideas about where we see success and where we see promising things to inform the policy makers about how they may want to shift policy.
I have one more follow-up and then I'll go to the room. You were the co-lead of global capital at Goldman Sachs, so you were in the city where the center of global capital flows. One of the things that I haven't been able to look at data for, but I imagine that we've probably seen shifts in District 4. What is the impact of global capital flows now in regions like District 4 in comparison to the New Yorks and LAs of the world?
This year has been a really interesting year in terms of global capital flows. It was pretty well documented in the beginning of the year that the dollar weakened relative to other currencies. From the conversations that I'd had with market participants, it was not so much people leaving the dollar as most international investors had been very overweight dollar assets, so it was really just shifting to be a little bit more in line. It wasn't moving away from the dollar, just shifting to be more in line. All of the different regions that I travel and spend time with, whether it's the Chamber of Commerce here, the Greater Cleveland Partnership, they're all working to bring more international businesses to their hometowns, to the region to show growth and to help show what a great place it can be to invest and live and work. I think that's been successful. Early in the year, there was maybe more resistance to international companies coming to the US and setting a footprint, but I think we've seen some breakthroughs in terms of new businesses coming in and developing.
Good to hear. All right, questions from the room. Up front here, we have a question from one of our students.
Good morning. Thank you for coming. My name is Hernando Aaris from Colombia. With the new Fed chair coming next year, probably Kevin Hassett, how do you think...
That's going to affect rates and balance sheet expansion or contraction and the new Fed. Do you think the Fed will have a new inflation target of around 3%, seeing that it's been sticking in the high twos for a while?
So, our inflation target is 2%. That was created in 2012 as part of our consensus framework, and that's something that I am committed to, and I think you probably heard Chair Powell say that he was committed to as well. As I mentioned, inflation has been too high and it's been pretty stable. It ticked up a little bit, but it's been really kind of stuck closer to three than two. It is our job and our responsibility to get it down towards 2%, and I'm committed to doing that. It is challenging right now for monetary policy because we're being challenged on both sides of the mandate. So inflation has been too high and it's been holding there at those levels for some time. But we are seeing some softening on the labor side of the economy. I know that as college students and as hopefully soon-to-be graduates, there's a lot of focus about how hard it's been for some recent graduates to find opportunities and to find new jobs. We are looking closely at the labor market to understand how much of this is secular, how much is driven by some of the automation, AI, and other changes, and how much of this is cyclical. Our monetary policy tools are really well suited for handling cyclical changes. They're less good at handling structural changes. So if this is really a structural change that we're seeing in the economy, that's something that fiscal policy or elected officials are going to be better set up to manage. But I am truly committed to the 2% objective. I think it's critically important that we do bring inflation back down towards our target. I have every confidence that a new chair coming in will also be focused on a 2% inflation objective. Right now the challenge is in balancing both sides of our mandate. We want to make sure that we're supporting maximum employment alongside price stability. To me, one of the reasons why price stability is so critical is that if you have price stability over the medium and longer term, that will support better job growth. Having stable prices means that businesses and households can plan better for their futures. They can think about where they want to invest, where they want to grow. They have more certainty about what their dollars today are going to be worth tomorrow. So it's critically important that we do that to support the labor side of our mandate.
