Federal Reserve Bank of Richmond President Jeffrey Lacker (above, center) says an interest rate increase is likely soon.
Lacker shared his thoughts on a potential interest rate increase during a meeting last week with Maryland Chamber of Commerce President and CEO Christine Ross, Executive Committee Chair Sheela Murthy, and other Chamber representatives.
Lacker’s sense has not changed in the last few months, as he has noted publicly. “Financial market participants certainly seem to believe a rate increase is imminent, and I believe the economic data indicate an increase is warranted. The FOMC (Federal Open Market Committee) will consider all available information before making a decision.”
When deliberating monetary policy decisions, the FOMC must consider the Federal Reserve’s “dual mandate” to promote maximum employment and stable prices. The Fed’s legislated objectives also include moderate long-term interest rates.
“The recovery from the Great Recession has been slower in some respects than we would have hoped,” Lacker said. “But we have made significant progress, and waiting too long to raise rates poses the risk that inflation pressures will build. In the long run, low and stable inflation creates the best environment for businesses and households.”
The Fed vote includes all seven members of the Board of Governors, the president of the New York branch, and four of the remaining 11 bank presidents; Lacker does not have a vote this year.
The meeting’s far-ranging discussion included conversation about Maryland economic trends.
In the short run, Maryland’s economy has faced some challenges, as Andrew Bauer, a regional economist for the Federal Reserve Bank of Richmond, explained. For example, the state was hit hard by the federal sequester in 2013. That was largely because Maryland receives a lot of federal contracts, and the deep and widespread federal budget cutbacks meant job growth in the IT sector, for example, was actually slower in 2013-14.
Data right now, Bauer said, point to a relative flattening of job growth over the past six months. However, business owners he has spoken with from with throughout the region have said hiring is good—even “booming” for IT and tech, two industries where Maryland has carved out a niche it hopes to grow.
Still, regulations remain a concern. Chamber President Ross noted that worries about benefit and salary requirements can result in more part-time workers. Ross and Lacker also discussed Maryland’s competitiveness relative to other states, noting the difference in climates even within the Federal Reserve Bank of Richmond’s district, which spans from Maryland to South Carolina.
Data on employment and non-employment are important, but not the only, indicators for the Federal Reserve in assessing the state of the economy. As BGE President & COO and Chamber Executive Committee Secretary-Treasurer Stephen Woerner pointed out, data don’t always tell the whole story. For example, despite low unemployment in Maryland, BGE still works with many Marylanders who cannot afford to pay their full bill.
Business loans, however, do seem to be trending upward in the post-election weeks. Old Line Bank President & CEO James Cornelsen, who sits on the Chamber’s executive committee, said his bank had seen a slowdown in loan applications, but there has been a surge since the election.
Fellow committee member and M&T Bank Senior Vice President Ralph “Buddy” Emerson mentioned that some individuals, and even businesses, have been advised to accelerate their charitable contributions now, before any potential tax changes at the federal level next year. While it is impossible to know for sure whether federal tax changes will limit deductable charitable gifts, the overall uncertainty has led to such advice.
Lacker has been meeting with chambers of commerce from throughout the Richmond Fed’s district to hear from business leaders about economic conditions in their region, and to share information about the role of the Fed and the regional reserve banks.
“It’s important for us to be a voice for our members so the Federal Reserve has an even better sense of what matters to Maryland businesses,” said Ross. “This meeting was a wonderful opportunity to share information.”
The Richmond Fed is one of 12 reserve banks established to represent diverse interests from across the country. The banks are privately incorporated and overseen by a board of directors composed of community and business leaders. The Federal Open Market Committee sets monetary policy. All reserve bank presidents participate fully at each FOMC meeting, even in non-voting years.
“We appreciate the opportunity to hear directly from business leaders in our district about the challenges and opportunities they face,” Lacker said after the meeting. “Everything we learn about the households and businesses in our community helps to inform our policymaking.”