Investing In The Region’s Workforce
PACB President/CEO Nick DiFrancesco (ND): You’ve been at the Federal Reserve Bank of Philadelphia for almost one year now. What is your approach and primary focus?
Federal Reserve Bank of Philadelphia President and ceo Patrick Harker (PH): As a native son of the Third District, I care about the economic growth of its communities. I grew up in South Jersey, and I’ve spent most of my career in Pennsylvania and Delaware. I know the region’s many unique economic strengths and its potential for growth.
Our job at the Federal Reserve Bank of Philadelphia is to help shine a light on what’s working well, to provide our research, to define areas where more can be done, and to foster collaboration to grow jobs and the economy throughout the Third District, which includes southern New Jersey, Delaware, and eastern Pennsylvania.
Our Bank is also committed to contributing to the national economy through our role in shaping monetary policy. I’ve met with community leaders across a broad range of sectors to inform my understanding of how issues like social mobility, economic inclusion, and equitable growth are playing out in the Third District. The Federal Reserve Bank of Philadelphia adds value to local communities by bringing these insights to the conversation about the national economy.
ND: What economic trends are you seeing in the Third District?
PH: This is an exciting time of change for the region. We’re seeing renewed investment in businesses across the Third District, and as a result, employment growth.
One of the highlights of my first year at the Fed has been touring the Third District to get a better understanding of the forces behind the region’s growth. I’ve heard firsthand about innovative community programs, new housing models, small business challenges, and much more. People’s pride, commitment, and resilience are empowering.
I visited Allentown in the Lehigh Valley of Pennsylvania to see the expansion of businesses in that area and their plans for future growth. I also went to northern Pennsylvania and visited Williamsport, where business leaders told me they remain optimistic that as energy prices come back, they will continue to be a major producer of natural gas. I met with Mayor Dana Redd and other community leaders in Camden to learn more about their efforts to build economically healthy and sustainable communities. There is an overarching trend of optimism, and I believe that it’s well-founded. Our challenge is to make sure we have the resources, the vision, and the leadership to make full use of our District’s potential.
ND: What can the Federal Reserve Bank of Philadelphia do to support job growth in the region?
PH: The strength of our economy greatly depends on the skills, ability, and financial stability of our workforce. Local business owners are telling me they need trained workers to grow their businesses. There must be more investment in human capital to meet this demand. Investing in our region’s workers can lead to improved quality of life and economic growth across the board.
For this reason, the Federal Reserve Bank of Philadelphia has been particularly focused on workforce-related issues for young people. There has been about a ten percent decrease in labor force participation among young people between the ages of 16 and 24 in recent years. So, we are looking at strategies to bring this demographic back into the workforce in a productive way. I recently toured the facilities of the YouthBuild Philadelphia Charter School, Philadelphia Works, and District 1199C Training & Upgrading Fund. These organizations are focused on reengaging young people in this region and helping them learn job skills and find meaningful work. The work these groups and others are doing has an important and positive impact on the future regional economy.
ND: What can the Philadelphia Fed do to ensure that economic growth is shared by people across the region?
PH: Equitable economic growth has been a long-standing priority for the Federal Reserve Bank of Philadelphia. I’m meeting with the people that drive our regional economy and asking the question: What can we do to help you grow the real economy? Monetary policy does not grow the economy. That’s the job of great mayors, great business leaders, and great community organizers. The role of the Federal Reserve is to facilitate critical conversations among key stakeholders.
Our Community Development Studies & Education Department recently convened stakeholders to discuss the goals of the White House Promise Zone Initiative in Camden. The event highlighted the important role that banks play in the city’s redevelopment through Community Reinvestment Act lending. Bankers, community leaders, business owners, representatives from education and healthcare, federal partners, and community development specialists were all in one room, working toward the same goal: increasing economic opportunity in Camden. It was a great reminder that our region is filled with people who are committed to its future.
ND: What is your approach to monetary policy?
PH: I would characterize my approach as data-dependent. I formulate my policy perspective by considering all of the data— from market stability to job growth to inflation— and make decisions based on what the numbers are telling us. I think it’s important to take a long-term view rather than to react to short-term volatility and consider an array of data and longer-term trends in forming a policy stance.
ND: You’ve spoken about good and bad monetary policy. Can you expand on this?
PH: Good monetary policy is almost invisible when it’s done well. It allows businesses and employers to invest in the people, capital, and technology they need to grow their businesses. Good monetary policy can smooth out business cycles, but will not affect long-term economic growth. You’ll recognize bad monetary policy because it limits businesses from doing what they would naturally do. It goes without saying that bad monetary policy can derail the economy and reduce economic growth.
Here’s another way to put it: There is growth potential out there, and the best that monetary policy can do is to help achieve that potential, but it can’t affect the potential itself. There are limits to the effectiveness of monetary policy that we must be careful to respect.
There is plenty of scope for economic policies — broadly interpreted — to improve the performance of the U.S. economy. There is a great deal that lawmakers can do through fiscal policy and tax policy to support long-term economic growth.
ND: You’ve expressed that you’re optimistic about our economy and that the underlying trend is that our economy is growing. Can you talk about some of the indicators you are seeing?
PH: Economic fundamentals are sound and our financial system is in good shape. The main indicator is the labor market. We are seeing robust hiring, which includes the replacement of the baby boomers who are retiring.
We will continue to monitor the global economy and its impact on the United States. The strength of the dollar and shifts in China’s economy are two variables that we are paying particularly close attention to.
Data will be a key factor in all of my future policy recommendations. If financial headwinds dissipate quickly and inflation picks up a bit more aggressively, it will require a slightly more aggressive approach to policy.
ND: What are your thoughts on community banks’ role in the economy in the US, and more specifically Pennsylvania?
PH: Community banks across the country, particularly in Pennsylvania and the broader Third District, are critical because they serve small businesses, growing businesses, and consumers where they are. They can take the pulse of the local economy because they are so deeply immersed in their communities. These banks have an invaluable perspective of their local economy because their customers are their neighbors.
We at the Federal Reserve Bank of Philadelphia want to make sure we continue to create an environment where community banks can thrive. We regularly meet with community bankers to talk about current banking conditions. These conversations are essential to my understanding of local economic climates. We also get feedback from community bankers at our annual field meetings across the District each fall. The field meetings are an opportunity for us to engage in a dialogue with community bankers about topics like banking regulation and business trends. I look forward to connecting with bankers at our field meetings in the fall.
ND: The current trend in the banking industry is consolidation. What impact will this have on the economy and the Federal Reserve?
PH: One issue is that we have fewer member banks as the total number of banks in the District continues to shrink. It puts the onus on us to understand why that consolidation is happening. Some of it is economics. I’ve heard from community bankers about the heavy financial burden from expenses like cybersecurity and investment in technology. That’s an issue of economies of scale. It can be easier for larger banks to take on those investments.
Community bankers have also told me about issues like compliance cost. It’s important for the Federal Reserve to hear about these challenges and bring them to policymakers in Washington. We need to discuss how we can ease that regulatory burden for the banks while continuing to ensure that they are safe and sound and consumers are protected. That is our challenge.
ND: What are some aspects of the position that surprised you?
PH: The Federal Reserve’s role in the non-monetary policy world is often misunderstood. We conduct a tremendous amount of research on economic and community development trends to share with stakeholders in our District and across the country. We do research on issues ranging from the challenges and opportunities for community banks in small business lending to the effectiveness of pre-purchase homeownership counseling.
Also, I think a surprise to everyone who enters this position is just how connected the Federal Reserve System is to their stakeholders. Each Federal Reserve Bank works with the local banking community, community development organizations, and local businesses, among other groups. This structure gives Reserve Banks a unique perspective on the economy that is more nuanced than what could be gleaned just by looking at the data. It also ensures that the voices of all citizens are reflected in policy decisions.
ND: You keep a very busy schedule. What do you like to do in your spare time?
PH: Two things. I love to cycle and I am an avid woodworker. When the weather is nice, I’m out on my bike. When the weather is bad, I’m in my workshop. I have made a lot of furniture, including my bedroom set. It’s a good gadget hobby. And I still have all ten of my fingers. So far, so good.