We are getting ready to have our first plenary session with Governor Barr. So, we're looking forward to that. I do want to again repeat my thanks for all of you that are here participating and exchanging ideas. I was asked to tell you a little bit about Pon Bank. So I will tell you that the bank is headquartered in the Bronx, for which we say go Yankees. And now we say also go Knicks. So, the work that we do in the Bronx, it's the poorest county in the country. You would think that in New York City you wouldn't see that but it actually is. And so we are fortunate in the sense we do a lot of lending in the Bronx and everything we do is deep impact. So it's very rewarding on the one hand, but it also helps us meet the needs for our EIP and we are fortunate enough to be at 83% so far. So our lending people wanted to take some time off because they said, hey, we got way over 60% so why can't we? And I say hell no, continue.
Oh, we're ready. Sorry. I was trying to kill time. [laughter] All right. You will introduce the governor. Okay. Thank you.
Good morning. All right. Okay. So, we're gonna go ahead and get going. Michael, I'd like to thank you for joining us today and being our really our kickoff plenary speaker for this conference. For many of you know Michael, but maybe for those that don't, I want to tell you a little bit about Michael. Michael Barr is a member of the board of governors at the Federal Reserve System and he has served there since July of 2022. He previously served as the Federal Reserve's vice chair for supervision from July 22 to February 2025. Prior to joining the board, Michael was dean of the University of Michigan's Gerald R. Ford School of Public Policy, where he held faculty appointments in both public policy as well as law. He previously served at the US Department of Treasury where he served as assistant secretary for financial institutions as well as several other senior policy positions. And many years ago when I worked in treasury I had the pleasure of working directly with Michael which was a great experience. Now, over the course of his very illustrious career he has focused extensively on financial regulation, consumer and community finance, financial inclusion and stability of the banking system. Governor Barr earned his BA in history from Yale, a master of philosophy from Oxford and his law degree from Yale Law School. So please join me in welcoming Governor Barr.
Well, first of all, let me say Janine, thank you for inviting me. I'm really happy to be with your wonderful membership here and your guests. CDFIs and CDFI banks in particular have been doing amazing work around the country for many decades. And I also want to thank you for your leadership in this space for more than 30 years now. Janine has been a fierce advocate for the CDFI world. So, I think we all owe you a debt of gratitude.
All right. Well, why don't we just sort of go ahead and get into it? And we have some, you know, starting with some economic questions for you. The University of Michigan consumer sentiment index hit a record low of 47.6 in early April of this year. And that's the weakest reading ever recorded. And that includes the pandemic, it includes the '08 financial collapse. And much of it is driven by the Iran conflict and its real toll on consumer morale. With projected inflation expected to jump to 4.7%. As of May sentiment still remains near that low level with roughly a third of consumers saying gas prices and 30% citing tariffs as the reason for some of the financial strain. So, I'm wondering if you could characterize the overall state of the economy right now and how confident is the Fed in its ability to read what's coming next?
Well, I think what the sentiment survey is showing, which makes a lot of sense to me, is that people really, really, really don't like it when prices go up. And that makes a ton of sense. And when I fill my car, I notice that it's a lot more expensive. Food is more expensive. So inflation is really something that the American people rightfully don't like. And if you look back on the path that we've been on, there was a big increase obviously in inflation that came with the COVID period. And then that inflation was reinforced with Russia's invasion of Ukraine. And then over the last few years, from 22 when I joined the board, 23, 24, we made a lot of progress in bringing inflation back down. We were on a very smooth path towards 2% inflation. And then the economy got hit with another shock, which is the tariffs that came in. And we saw prices drift back up and we were looking to see whether those price increases would stop and we're still looking for that. And then we got hit with another shock which is the conflict in the Middle East which as you noted raised prices for all different kinds of fuels and fertilizer and certain other minerals and things and that inflation is also now bleeding into the economy. And we're also seeing some inflationary effects from the significant buildout associated with artificial intelligence and data centers. There's putting some upward pressure in the computer and software sector, chips and the like. So that's the picture on inflation. Now we have a job to get that inflation back to 2% and we are going to do that. It is going to take some time to work through those shocks. The other thing that you can look at in the economy is the overall resilience of the US economy during this whole period. GDP growth has been very solid. 22, 23, 24, 25, 26. And each quarter people have expected consumer spending to decline and it's held up very well. Now, a lot of that, you hear people talking about the K-shaped economy, that means that rich people are doing really well. And so a lot of spending is on that side. And lower income people are having a harder time as you know. So that's the basic picture. Now if you look at the labor market, the labor market right now is in a very unusual place for the United States economy, which is we have essentially zero net job growth over the last year or so. But we have also had basically zero labor force growth over that period. So even though we're not creating a lot of new jobs on net, the unemployment rate has stayed pretty low. By historical standards, because there aren't as many people entering the labor force, and that's basically because immigration has dropped significantly over the last year and a half, net net immigration. So that's the state of the economy. We've got strong GDP growth in part driven by this AI boom. We have inflation above target because of these shocks from tariffs and from the war in Iran and we've got a labor market that is in balance but at very very low levels of growth. So that's the look at the economy.
Sure. Okay. Now I want to drill down a little bit more so in terms of this is a room full of bankers that all focus on serving low and moderate income communities. So sometimes their experience with the economy may be different than what the big indicators say. So, we've been talking about affordability and it's a key challenge for US households. There was an Urban Institute analysis that found that 49% of American families reported that they didn't have the resources to cover basic essentials to live securely. At the same time, the New York Fed's fourth quarter 2025 data shows that average household debt delinquencies reached 4.8% which is the highest rate since 2017. With borrowers in the lowest income bracket really seeing the brunt of that. And of course, we know interest rates have a bearing on cost and the pricing of capital, but affordability is very, very complex. So, I want you to maybe speak not so much to that big picture economy, but really talk about kind of your assessment of the financial health of households that are below median income. And what signals would cause the Fed to treat LMI consumer stress as a systemic concern rather than a distributional one?
Well, that's a terrific set of questions and I'll do my best with it. But let me just start with most of the low and moderate income communities that I know and that I've visited around the country over the last few years, they're struggling. And that's really hard. And if you're a low and moderate income person and you're seeing these price increases on basic goods, on necessities, you don't really have a lot of wiggle room in your budget. If you're a higher income person, maybe a middle income person, maybe you trade down and you buy less expensive products or you have less discretionary activity. But if you're a low-income person, those things are already gone. So you don't have that room to adjust. I wrote a book many years ago called No Slack. And it's about the way low and moderate income people don't have any wiggle room. They don't have room for a mistake. They don't have room for their car to break down. If you look at the latest SHED survey that we put out, there's still almost 40% of Americans who couldn't come up with $400 if they had an emergency expense. So at the low end people are struggling and you are seeing the kind of balances people built up from the government assistance from COVID have come down and you are seeing more borrowing and you're seeing more delinquencies at the lower end of the market as you've described. So I pay a lot of attention to that in thinking about what's going on overall in the economy. You asked whether it's systemic. It's systemic in the sense of low and moderate income people are experiencing this and for them it is hurting their financial stability. It's not systemic in the sense of creating financial stability risks in the economy right now. And we have to pay attention to both those things. The levels of delinquency are elevated, but they're not like the global financial crisis elevated.
But what would be a tipping point at which the Fed would become concerned?
I can't describe that with precision. We look at all the kind of factors going on in the economy. If you look overall at the economy, household balance sheets are very solid. If you look again at the macro level, business balance sheets are very solid. We don't see a lot of elevated leverage in the sort of real economy. And that means that the basic structure of the economy is doing well. So those are the kinds of things that we look at.
Okay. All right. I'm going to pivot a little bit to an issue of always sort of great concern for bankers, for community banks and that has to do with margins. Now certainly the extended interest rate environment has compressed net interest margins for community banks, particularly those holding longer duration types of loans. The Kansas City Fed data shows variable rates on small business lines of credit declined modestly to 7.9% at urban banks for the third quarter of 2025, which is still well below pre-tightening levels. Meanwhile, the expectations for inflation have really surged to 4.7% as we talked about a little bit earlier, complicating the path to lowering interest rates. So, I'm just wondering what the Fed's current thinking is about the rate path and what signals our bankers, the CDFI banks should be watching closely as they plan for their own balance sheets and maybe talk a little bit about going back a little to the next question as it relates to this about the Fed's role in solving the affordability crisis that is indirectly tied to the rate environment.
So first let me say whenever I talk about the economy and certainly whenever I talk about monetary policy I'm only speaking for myself. I'm not speaking for any of my colleagues on the rate setting committee or on the board. These are my individual views. So I think we're in a tough spot in the sense that these shocks to the economy that have come have continued to put pressure on inflation. And if you look in the economy right now we're not near the target that we need to be which for us is 2%. And in some measures we're drifting away from it from these oil effects and tariff effects. So we want to be sure before we take our next step that we understand the path of those shocks. So in one scenario the shocks are essentially one-time price effects. They raise the level of prices but they don't create inflation dynamics. And if that's true, you should see inflation coming back down towards target. And we ought to be able to see that in the data. We haven't seen it yet. And if that's the case, then we can probably hold rates steady for a while and then as we see that play through eventually come to a point of cutting rates. We're not there right now because the data aren't showing that path right now. If you think about another path, another path would be these shocks are bleeding through more broadly into the economy and then you'd start to worry more about inflation and we're not seeing that yet in the data either. So, we're in a good place in terms of our policy right now to wait and see to actively monitor which of these paths we may be on. So, I think our current policy is in a good place. My own view is it's likely to stay there for quite some time as we wait to see how this plays out. But there's also the risk that if we see that second scenario described where inflation is extending more broadly into the economy that we might actually have to raise rates. So those are risks on both sides and we have to be really attentive to those risks.
Now you said you sort of see we could be in this place for quite some time. Now based on history do you have any guesstimate on what quite some time might be?
So, people at the Federal Reserve use phrases like for quite some time with intentionality.
All right. Okay. So, the answer is we'll see is basically. Okay. All right. I'm gonna pivot to another topic which is of great importance to this group and it has to do with regulatory relief. The current regulatory moment shall we say is being framed broadly as relief for banks but much of the efforts that we have seen from the current administration really seems to be targeting the constraints on larger financial institutions. Now for the CDFI banks that are sitting here in the room today which tend to be they are certainly smaller banks everyone is a small bank by definition but they're typically well capitalized, relationship-based, they're not really a source of systemic risk in any way shape or form so what does this deregulatory environment mean for them and do you see any kind of meaningful relief for smaller banks, mission-driven banks, or is this pretty much a large bank effort?
Well, let me just start by saying, as I said at the outset, the work that you all have been doing over many, many decades, I think is really just an absolutely essential part of our financial system. The work you're doing to serve low and moderate income communities wouldn't get done without the work that you're doing. And I've seen many, many times when a CDFI bank is serving a community and doing well, then the bigger banks say, oh, well, maybe I can get in there and get involved, too. So, you're kind of showing the way. And so, the work that you're doing is essential. And I think, overlooked in the current context. And for my part when I look at the deregulatory efforts that have been going on so far they are benefiting the very largest banks in the country. So in the package of proposals and final rules that have been issued the eight largest banks in the country the G-SIBs got $65 billion in capital relief. And that's now going into share buybacks and higher executive compensation. I mean, people should be paid for their work, but the share of executive compensation as a share of revenue went up by 18% from last year, and the share buybacks are up 66%. So that's not benefiting communities around the country, right? It's not benefiting community development banks. And I think that's a problem. I think long-term it raises concerns that we will increase the risks of financial stress in the system. Not today or not tomorrow, the banking system is very, very sound. But over the long term, as you see lower levels of capital and less supervision, you increase the risk that down the road there might be a problem in the financial sector. And that hurts all of the work that you do.
All right. I want to go to another regulatory issue and that is talking about CRA. Now last year the Fed, the FDIC and OCC all issued they basically rescinded the 2023 CRA final rule and reverted back to the old framework that we've had in place since 1995 as you well recall. It was a very long process to get through over the past 25 years. CDFIs have been trying very hard to be explicitly recognized in CRA. Now, CDFIs that are nonprofits have been fine because nonprofits by definition are recognized, but mission focused banks and credit unions, it has been a less clear picture. For larger banks to be providing financial support, partnering, doing other types of things. There's always been a little bit of hesitation because well, we don't really know if those are are we really going to get the CRA consideration for it. So certainly rescinding the rule where we finally got that recognition I have to say from our advocacy perspective was certainly a loss and but that was a set of provisions there were some things that were more controversial but that was a set of provisions that everybody seemed okay with at the agencies as well as in the banking industry generally. So given that there was pretty broad support for that set of provisions do you see any scenario under the current framework where all CDFIs including the CDFI banks and credit unions can get that explicit recognition. Is there a path forward on that or can you talk some about that issue?
So, let me say first on the CRA rule process. I strongly supported the 2023 rule. I thought it was a terrific advancement for CRA, for American communities. I thought it was lawful and appropriate and balanced the needs of banks and community groups and nonprofits and CDFI banks and all the communities that they serve. I think it was actually a wonderful advancement and the banking industry then sued us. And which has never happened before under CRA and sued to block the rule and they went to a district court that was known for being anti-regulation and that's where they filed and they won in the district court and it went up on appeal and we were concerned that if we didn't go to the board and rescind the rule that we would have a negative legal ruling on the books that was wrong in my judgment. But a negative legal ruling about CRA that would harm communities for decades afterwards. So that's why we are moving to rescind the rule. We propose rescinding it and we are moving forward to finalize that decision for that basic reason to have legal certainty for CRA and certainty for communities that CRA will keep serving all of us for many decades to come and the uncertainty around that was creating problems for everybody people couldn't plan about what technology they were going to use, what approach they were going to take. Communities didn't know what standard was going to apply and that uncertainty was quite harmful. So that's basically where we are now. Your question is can we incorporate some of the things that were in that rule in different ways and that's something that we are looking at. I strongly support the idea of clarifying that all CDFIs are not only eligible but very wise to invest in under the community reinvestment act and we've done some things in the past as you know there are frequently asked questions Q&A under CRA that are still in place that highlight the eligibility of CDFIs and when banks ask examiners about CDFIs. Examiners say good things to them about CDFIs. So, we can do more to probably to formalize that outside of the regulation and that's something that we're willing to look at.
Okay. All right. That's great. That is very good news to hear. So, the last question I'm going to do one last question and then we're going to open it up for the audience. And I think we're supposed to have some mic runners. I don't know if we Yes. Okay. In the back, we have some mic runners and they'll be standing at either side of the room. So, please, this is your opportunity to ask a Fed governor a question because he's right here and we've got him, at least for the next 15 minutes or so. So my last question for you, Michael, is on cryptocurrency, okay? And kind of the intersection with community development finance. We know that this administration has been a pretty vocal proponent of crypto and the agencies all acted last year to allow banks to engage in digital asset activities. And there are some in the crypto sector that will make the argument that it's potentially a tool to expand financial inclusion for unbanked, low-income, historically underserved, etc. Better than traditional banking products because they have lower transaction costs, easier to use. Do you want to talk a little bit about kind of the pros and cons of crypto with sort of this more vulnerable group of customers and what do you think the real risks are for small banks to engage in the digital asset space or how it's going to affect them competitively if they choose not to.
So I would say a couple things. One is at the Federal Reserve we are technology agnostic that is we're not pro-crypto or anti-crypto in the work we do. We expect financial institutions that engage in any activity that they engage in to do that with appropriate risk controls. And we've seen some instances including in the community bank sector of banks operating without those appropriate risk controls. And that's true in crypto. It's true in some fintech partnerships. But there are many other institutions including community banks that are perfectly fine to engage in those activities and have the right risk controls in place. So for community banks the thing that I would say is and for CDFI banks engage in it if you think it's consistent with your mission and you have the appropriate risk controls in place and that those risk controls include on consumer protection but also on things like do you understand the pattern of deposit flight from that sector? Do you have good assessments of your management of that risk of your liability risk and do you have very strong controls in place for money laundering and terrorist financing because we've seen some institutions get into trouble by not having those strong enough risk controls in place. And so you could only engage in it if it advances your mission, right? like don't just go chase it and only do it if you have the right risk controls in place and if you do then that seems appropriate to me.
Okay. And what about this argument that some of the crypto providers make about this will be good for low-income communities?
