Category: Banking

The COVID-19 pandemic reminded us that a community is only as resilient as its most vulnerable members, and that some rural areas have a disproportionate share of vulnerable people, making them acutely at-risk when disasters occur. Given the significant impact of the pandemic on these individuals and their communities, it is vital for rural community leaders to ensure the most vulnerable members of their community are included in their recovery efforts.

The pandemic has also forced all communities, but especially rural communities, to improve their disaster preparedness. As rural communities engage in both immediate recovery efforts and planning for future resilience, understanding and bolstering their local capacity while setting priorities for future investment could be critical.

Local Rural Capacity Requires Community-Based Organizations

“Capacity” is “the inherent knowledge, skills and resources that enable communities to meet their immediate needs and prepare for their future needs,” community development experts Sarah Kackar and Susan Fitter Harris wrote in a chapter (PDF) of the 2021 book, “Investing in Rural Prosperity.”

In rural communities, this includes “residents who are healthy and financially stable” and “enfranchised to make their voices heard,” the authors wrote. Also needed are local systems that are functional and responsive to changing conditions and cross-sector collaborations that support vibrant communities.

In another chapter (PDF) of the book, Noel Andrés Poyo proposes that, to advance inclusive rural development, rural communities rely heavily on the capacity of place-based institutions that deliver capital and economic opportunity, such as community development corporations. Such community-based organizations are a critical component of local capacity and are key to creating an inclusive recovery plan because they are grounded in the community and, as a result, tailor their products and services more closely to the community’s needs. These local nonprofit organizations can bridge gaps in local government staffing and provide support in resource-strapped areas. Thus, rural community leaders should consider supporting local community-based organizations as a core element of any effort to advance an inclusive recovery.

Mapping Out Priorities and Capacity Gaps

But community-based organizations and those that support them face critical questions of where and how to invest when building out their capacities. To shed light on where current capacity gaps exist and identify capacity investment priorities, several organizations, including the Regional Rural Development Centers (RRDCs) and Aspen Institute’s Community Strategies Group, have worked to understand and measure capacity throughout the rural U.S.

In the report Investing in Rural Recovery (PDF), the RRDCs released findings from their national survey of rural development stakeholders. The report identified key informants’ perceptions about priorities, capacities and the potential to expand programming in critical topic areas. Their initial findings revealed the following priorities as the most important for rural community, economic and workforce development over the next five years:

• physical infrastructure and public services;
• economic development;
• workforce development, training and education; and
• health programming and policy.

Embedded within these broad priorities are advancing broadband access, fostering equitable and inclusive growth, supporting entrepreneurship among socially disadvantaged minority groups, and improving public health, including the availability of and access to medical services.

In addition to identifying priorities, the RRDCs also wanted to understand the current capacity to address these priority issues and where there may be opportunities to expand capacity related to specific priority issues. The RRDCs found that the topics ranked as the most important, such as physical infrastructure and public services, were also those for which the respondents reported the lowest average ratings for capacity. The capacity of respondents’ organizations to engage in programming was rated highest for the topics of agriculture and food systems; diversity, equity and inclusion; and climate change.

Importantly, the ratings of current capacity varied across the four rural development regions of the U.S., as the infographic shows. For example, capacity to advance efforts related to the topic of agriculture and food systems was ranked high in the South region, but low in the West. So, capacity-building interventions cannot be a one-size-fits-all solution but must be tailored to the relative strengths and weaknesses of communities and regions.

Technical Assistance Alone Does Not Build Organizational Capacity

During Aspen Institute’s 2021 Rural Opportunity and Development Session titled “This Is What Capacity Looks Like,” rural leaders revealed that capacity building often involves supplying technical assistance to local groups, provided by national or regional organizations, and using federal government resources. But technical assistance alone does not build organizational capacity—more is often needed.

And because building and sustaining local capacity take a lot of groundwork and time before one can see tangible results surface, communities often find it difficult to make the long-term, consistent investments needed. To help communities assess where they are and what they are accomplishing, the Aspen Institute’s Community Strategies Group (formerly Rural Economic Policy Program) and its partners offer a workbook (PDF) to help communities measure and gauge their progress on creating the necessary commitment, resources and skills to improve the communities’ ability to make well-reasoned decisions about their present and future needs.

Envisioning What’s Possible

Inclusive recovery will not be possible without the local capacity to envision what that looks like and how to achieve it, and then to bring all the relevant parties to the table to support and advance that vision. Therefore, building local capacity and investing in the organizations that serve the community are important for advancing economic prosperity for vulnerable community members.

To learn more, see “Investing in Rural Prosperity,” which highlights how rural communities are building local capacity that is inclusive and collaborative by leveraging partnerships to respond to economic stress and other challenges. These key insights, drawn from local examples, are highlighted in a one-page summary (PDF) recently released by the Federal Reserve Bank of St. Louis.

Editor’s Note: This post was updated to correct a hyperlink. 

Immigrants are a vital part of the U.S. workforce, constituting almost one-fifth of the U.S. labor force in December 2021. While the effect of pandemic-related disruptions on overall U.S. employment has been widely discussed, their effect on immigrant employment has not received corresponding attention.

A July 2021 Pew Research Center article noted that the pandemic disproportionately raised unemployment among foreign-born workers. The unemployment rate for foreign-born workers climbed from about 4% in the first quarter of 2019 to a peak of 15.3% by the second quarter of 2020. In comparison, the unemployment rate for U.S.-born workers rose from 4.1% to 12.4% over the same period. The article also found that employment among immigrants recovered well: The unemployment rate fell to 5.9% by the second quarter of 2021, which was just 0.1 percentage points higher than the rate for native workers.

Unlike native workers, who can stay in the U.S. when faced with job losses due to COVID-19 disruptions, some unemployed immigrants may return to their home nations, especially if their U.S. visas are employment-based. This tends to drive down both the number of foreign-born unemployed workers looking for jobs in the U.S. and the total foreign-born labor force. Because the immigrant unemployment rate is the proportion of the immigrant labor force that is unemployed and looking for work, the exit of some foreign-born workers must reduce the rate.

In turn, this suggests the 15.3% unemployment rate cited in the Pew report is probably lower than what the foreign-born unemployment rate would have been in the absence of any foreign-born workers leaving the U.S. Related to this point, we explore whether COVID-19-related disruptions led to substantial job losses among foreign-born workers and drove some of them to return to their home nations. We accomplish this using monthly data to compare pre- and post-pandemic immigrant employment and labor force patterns during the period from January 2018 to December 2021.

This article makes two contributions. First, we consider how the pandemic has affected the share of immigrants in the U.S. population, the share of immigrant employment in total U.S. employment, and the share of foreign-born workers in the U.S. labor force. Second, we focus on how the pandemic has affected the share of immigrant employment in the top six immigrant-intensive occupational groups at the end of 2019 (i.e., those with the highest immigrant shares in employment during December 2019).

Immigration and Immigrant Employment

Immigration policy and other factors—including push factors, like poverty or political instability in immigrants’ source nations, and pull factors, like good job opportunities in the U.S.—affect immigration flows. Immigration flows, in turn, determine how the size of the foreign-born population in the U.S. evolves over time.

The figure below shows that the pandemic and associated disruptions initially sharply reduced the foreign-born share of the U.S. population, with it reaching a trough in September 2020. This implies a net decline in immigration during this period. Since then, there has been a sharp recovery, with the December 2021 share exceeding the pre-pandemic share.

At the same time, the share of employed immigrants in total U.S. employment also fell sharply, from about 18.5% in February 2020 to 17.2% in June 2020. Although total U.S. employment fell sharply as well during this period, the impact on immigrant employment was proportionally higher. The fall in immigrant employment also coincides with the decline in immigration during the pandemic. As pandemic-related disruptions eased, immigrants’ employment share recovered to about 18.7% by December 2021.

The share of immigrants in the U.S. labor force was about 18.5% at the beginning of the COVID-19 recession in February 2020. Although the recession ended in April 2020, immigrants’ share in the labor force reached a trough of about 17.6% in June 2020 but then recovered to 18.7% in December 2021. The temporary declines in the shares of immigrants in the U.S. population, immigrant employment and the immigrant labor force all point to the fact that COVID-19 posed a heavy but temporary burden on both actual and potential immigrants during this period.

The Top 6 Occupational Groups Ranked by Immigrant Employment Shares

Pandemic-related disruptions had disparate effects on immigrant employment shares across occupational groups, as some were hurt much more than others. The next figure shows that the share of foreign-born workers in the farming, fisheries and forestry occupational group fell precipitously from almost half to about one-third by July 2020. Although seasonal factors can be important in the farming sector, the July 2020 number is the lowest among all the July numbers for the period from 2018 through 2021.

However, another top occupational group, building and grounds cleaning and maintenance, exhibits almost a flat line in the recessionary period and a modest dip shortly after the recession. Although further data and analysis are needed to be sure, it is possible that border disruptions reduced the availability of migrant labor in the farming, fisheries and forestry occupational group, contributing to the sharp decline in the foreign-born employment share during the recessionary period.

Recovery in immigrant shares has been uneven among the different occupational groups, with the top three groups showing markedly higher shares in December 2021 compared with their respective pandemic-era lows.

Conclusion

The COVID-19 pandemic temporarily disrupted immigration and immigrant employment patterns in the U.S. During the worst of the pandemic in the early part of 2020, immigrants suffered a disproportionate loss in employment. Both lower immigrant employment in the U.S. and pandemic-related disruptions that resulted in fewer potential immigrants to the U.S. probably contributed to this outcome. However, immigrant employment has strongly recovered, and in recent months, the U.S. labor market seems to be returning to pre-pandemic patterns of immigrant employment.

Endnotes

1. See Rakesh Kochhar and Jesse Bennett’s “Immigrants in U.S. experienced higher unemployment in the pandemic but have closed the gap,” Pew Research Center, July 26, 2021.
2. Say, for example, there were 5,000 unemployed immigrant workers out of a foreign-born labor force of 50,000 workers, which translates to an immigrant unemployment rate of 10%. If 1,000 of those unemployed immigrant workers left the U.S. labor force, the rate would decline to 8.2%.
3. Current Population Survey microdata, accessed via IPUMS CPS. See IPUMS.

“We also decided to begin the process of reducing the size of our balance sheet, which will play an important role in firming the stance of monetary policy.”

—Fed Chair Jerome Powell, May 4, 2022

Between March 2020 and March 2022, the Fed was purchasing U.S. Treasury securities and agency mortgage-backed securities (MBS) to foster smooth market functioning and support the flow of credit to households and businesses by providing accommodative financial conditions. This action was in response to the COVID-19 shock that hit the global economy very hard. The pandemic and shutdowns initially caused severe volatility in financial markets and induced uncertainty in the economic outlook.

Over most of this period, the monthly pace of purchases was $80 billion for Treasury securities and $40 billion for agency MBS. Overall, as shown in the Federal Reserve System assets graph, securities holdings more than doubled, from about $3.9 trillion in early March 2020 to $8.5 trillion in May 2022. As a percent of GDP, the holdings rose from 18% to 35%.

Federal Reserve System Assets More than Doubled in Two Years

Redeeming Securities Will Shrink the Balance Sheet

With the economy facing an extremely tight labor market and high inflation, the FOMC has raised its policy target interest rate a couple of times and, at its May meeting, announced it will begin reducing the size of the Fed’s balance sheet in June.

Mechanically, the Fed will reduce its securities holdings by not reinvesting the funds it receives from maturing securities. So, for example, when a Treasury security hits its maturity date, the Fed will not reinvest the proceeds into another Treasury security (as it has been doing over the past two years). Instead, it will redeem the maturing security, which will reduce the amount of the Fed’s securities holdings and the size of its balance sheet.

The Fed wants a predictable and smooth reduction in its balance sheet, so it is imposing redemption caps on the dollar amount of securities that will run off the Fed’s portfolio in any given month. For Treasuries, this monthly cap will peak at $60 billion; for agency MBS, the monthly cap will peak at $35 billion. To ensure a smooth transition to the runoffs, the caps will be phased in, set at half their peak levels in June, and increased to their higher levels in September, as shown in the graph below.

How Far Will Securities Holdings Be Reduced? 

In January 2022, the FOMC released a statement on its planned approach for reducing the size of the Federal Reserve’s balance sheet. The statement provided insight into how the FOMC is thinking about the appropriate size of the securities portfolio in the longer run.

“Over time, the Committee intends to maintain securities holdings in amounts needed to implement monetary policy efficiently and effectively in its ample reserves regime,” the statement said.

That means reducing securities holdings and the balance sheet to levels much lower than today’s. Absent other changes in conditions, as securities holdings decrease, reserve balances decrease. The Fed will need to make sure its level of securities holdings keeps reserve balances “ample,” or large enough so that small shocks to the level of reserves in the banking system do not put stress on money market interest rates.

How to Keep Up with Information on Runoff Plans

In May, the FOMC released detailed plans of how it will reduce the balance sheet. Besides mentioning the dollar size of the caps, it provided guidance on how it would end redemptions. In particular, as reserves are declining toward “ample,” the FOMC noted it plans to first slow and then stop the decline in redemptions when it judges reserves are somewhat above their desired ample level.

One can follow information about the Fed’s securities redemption plans by listening for commentary from the FOMC, including through post-meeting statements; minutes of the meetings, which are released three weeks later; and policymakers’ commentary. Another helpful resource is the Federal Reserve Bank of New York’s website, which reports on the policy implementation actions that the Open Market Trading Desk takes on behalf of the FOMC.

Editor’s Note: Updated to reflect Lorie Logan’s new position, announced May 11.

Notes

1. For more discussion of the Fed’s objectives and a detailed discussion of the implementation of the asset purchases, see the March 2, 2022, speech, “Federal Reserve Asset Purchases: The Pandemic Response and Considerations Ahead,” by Lorie Logan, a New York Fed executive vice president. (Logan has been named Dallas Fed president and CEO, effective Aug. 22, 2022.)
2. For more details, see the 2017 paper, “How Does the Fed Adjust its Securities Holdings and Who is Affected?” by Jane Ihrig, Lawrence Mize and Gretchen Weinbach.
3. The Fed holds a small amount of agency debt (see the Federal Reserve assets graph) that when matured will be folded into the agency MBS cap. No agency debt matures over the next several years.
4. For more information on “ample” reserves, see the August 2020 Page One Economics essay, “The Fed’s New Monetary Policy Tools,” by Jane Ihrig and Scott Wolla.

Union Bank has always prioritized giving back to the communities we serve. In fact, last year we provided meaningful support to over 175 non-profit organizations throughout northern Vermont and northern New Hampshire. From food shelfs and Meals on Wheels, to community health care providers and cancer research, to low & moderate-income housing projects, to performing arts and youth sports, trail organizations and more. We understand what a difference generosity can make to our towns, it’s in our DNA — because we live here, too. Each season we’ll dedicate an article that will focus on some of the great work our non-profit partners have been up to. In this piece, we highlight Copley Hospital and Northeastern Vermont Regional Hospital.

 

Copley Hospital in Morrisville, VT

Situated just a mile or so from Union Bank’s headquarters in Morrisville, VT, Copley Hospital is a not-for-profit critical access hospital that provides a unique blend of quality, compassionate, personalized, state-of-the-art medical care in a small, warm, friendly environment. Copley has been named a Top 100 Critical Access Hospital; a HealthStrong hospital and has been named one of the Top 50 hospitals in New England (based on patient satisfaction).

 

Union Bank has been a longtime supporter of Copley Hospital, having donated more than $100,000 over the past five years, and $600,000 since 1980. Several of our officers and directors have served on the Copley Board. Recently Union Bank supported the purchase of a new MRI and the construction needed to support this new unit.

 

Copley’s MRI was about five years past its lifespan and had been housed in a temporary trailer, outside of the actual hospital building. Patients would check in to the hospital and then would have to physically leave the building to get their imaging work done. The MRI tunnel was very tight and for patients who are claustrophobic, or even just wide shouldered, it was not a comfortable place to spend 30 minutes. Patients were often directed to other hospitals for service that required extremely high clarity of images.

 

At the same time, demand for MRIs has increased dramatically. In about five years, Copley Hospital has gone from seeing 5-6 MRI patients per day to often 10 per day. Rapid advances in technology have led to a greater adoption of MRI use across a wide spectrum of chronic disease examinations, including multiple sclerosis, breast cancer and other diseases where early intervention can be key to lifesaving treatment.

 

In January Copley completed the commissioning of a brand new, state-of-the-art Siemen’s MRI. The unit provides much sharper image resolution, considerably faster image processing and a more comfortable experience. Patients can watch movies, or listen to music while the machine is operating. Moving Copley’s MRI services inside the building and into its own suite is a big benefit to patients and the Copley team. The distance from the Emergency Room to the MRI trailer was quite a ways and patients who came to the ER in need of an MRI to determine the scope of their injuries had to be moved very cautiously. It is a huge asset to have the MRI located near the ER and the Surgical Unit.

 

The Sieman’s MRI (the newest in New England) now allows Copley Hospital to identify diseases related to orthopedics, spine lesions, tumors, strokes and cancer, as well as diseases impacting the brain and blood vessels. It has truly been a game changer for the hospital.

 

To find out more about how you can support Copley Hospital, check out their website, here: https://www.copleyvt.org/support-copley/give-to-copley/

 

 

Northeastern Vermont Regional Hospital in St. Johnsbury, VT

Located in Vermont’s Northeast Kingdom, Northeastern Vermont Regional Hospital (NVRH) is a robust rural health system that includes a 25-bed critical access hospital, multiple primary care clinics, specialty and surgical services, birth center, and a 24-hour, physician-staffed emergency department. NVRH is dedicated to improving the health of all people in the communities it serves, and to providing compassionate palliative care. NVRH provides high quality healthcare services focused on community needs at the lowest cost consistent with excellent care.

 

Union Bank is a recurring supporter of NVRH. During the peak of the Covid-19 pandemic, Union Bank participated in supporting Northeastern Vermont Regional Hospital’s relief fund. The fund enabled NVRH to meet emerging needs, such as purchasing critical equipment like protective gowns and masks, reconfiguring the hospital environment to better care for COVID-infected patients, and supporting staff who are facing COVID-19 related hardships.

 

“Early in the pandemic, we were initially cautious about reaching out to the community for help, from either individuals or businesses,” says Emily Hutchison, Director of Philanthropy at NVRH. “Our community has always provided an outpouring of support and concern for our hospital and for health care. When we announced the NVRH Covid Relief Fund to help us meet our needs for new equipment and respiratory supplies, Union Bank provided a generous gift. Also, without us even asking, Union Bank donated our merchant processing fees back to NVRH during April, May, and June 2020. This predated the CARES Act (Coronavirus Aid, Relief, and Economic Security Act) money – before hospitals knew what kind of funds would be available,” she said.

 

Prior to the pandemic, Union Bank had been dedicated to being a community partner to NVRH. One of the early fundraising campaigns the bank supported for the hospital was to help provide the community with a cancer center established at NVRH, along with helping fund a renovated birth center. Union Bank also helps with annual funding to help support NVRH’s supply of equipment and supplies.

 

Northeastern Vermont Regional Hospital has reliable facilities to provide their community with the care they need without having to travel out of town to an inconvenient location in order to be seen and treated.

 

NVRH relies on philanthropic gifts and donations from the community and local businesses in order to provide their care and services. The hospital realizes little profit from its medical procedures and has slim operating margins, so every dollar given goes toward meeting the health care needs of the community. To provide support, you can give to the NVRH Annual Fund. You can also visit the NVRH Giving page on their web site to learn more about ways you can help.

What is economics, and what types of skills do people with economics degrees have?

A standard definition of economics says the study is about decisions related to the production, distribution and consumption of goods and services.

Looking at a few descriptions of economics from people who work in the field provides some insights into the kinds of skills economists and others with econ degrees may develop.

Three Ways to Describe Economics

In her keynote presentation at the 2021 Women in Economics Symposium, Abigail Wozniak described economics as “a practice of using theory, data, and observation to interpret human behavior… while allowing that one or more of these could be wrong.” Wozniak is the director of the Opportunity & Inclusive Growth Institute and a senior research economist at the Minneapolis Fed.

In a panel discussion at the same symposium, Alessandra Fogli, who is the assistant director of inequality research and a monetary advisor at the Minneapolis Fed, described economics as an intersection between a hard science and social science. She explained that the social science aspect involves interesting questions about people, countries and individual economies, whereas the hard science part comes in because economics uses quantitative tools.

“So, somehow, it’s the most quantitative of the social science[s] or the most social of the quantitative science[s],” she said.

“It’s the most quantitative of the social science[s] or the most social of the quantitative science[s].”
—Alessandra Fogli

Julie Bennett, a senior research associate at the St. Louis Fed, provided another description of economics during an August 2021 Women in Economics podcast episode.

“I think economics, certainly, is about the data and the numbers side of things. But I think it’s also about the stories and the people that are behind those numbers and how we tell those stories in order to answer those questions that are really important to people and the workings of our world,” she said.

Based on these descriptions, it makes sense that people with economics degrees often develop communication and big-picture skills, along with the quantitative ones. And the skills often are transferrable.

Gaining Transferrable Skills

For those who pursue an economics degree, even as an undergraduate, the analytical training can apply to “a huge range of topics,” according to Anne Winkler, a professor of economics at the University of Missouri-St. Louis.

“There’s so much that you can do with economics. It provides a versatile, transferrable thinking and problem-solving set of skills, and it’s a skillset that’s valued by employers.”
—Anne Winkler

“There’s so much that you can do with economics. It provides a versatile, transferrable thinking and problem-solving set of skills, and it’s a skillset that’s valued by employers,” she said at the 2021 Women in Economics Symposium.

Winkler noted that a bachelor’s or master’s degree in economics also provides great training for law school, for public policy programs and for an economics Ph.D. program.

(For more information, see the August 2021 Open Vault blog post, “What Can You Do with an Economics Degree?”)

Developing Quantitative and Communication Skills

Even at the undergraduate level, students pursuing economics degrees have the opportunity to gain analytical, quantitative and statistical skills, as discussed in a January 2022 Page One Economics article by Aine Ackley, Mary Suiter and Scott A. Wolla. Such skills can be developed through courses in economics, computer programming and math, for instance.

Another important skill, particularly for economists, is the ability to communicate well, as Wozniak discussed during her keynote presentation. She cited an excerpt from a 2020 Journal of Economic Perspectives paper by epidemiologist Eleanor Murray. “At least from the perspective of this outsider, public communication appears to be a skill that economists have honed. … I suspect epidemiology has much to learn from economics about communicating with a skeptical and sometimes hostile public,” Murray wrote.

Wozniak noted that the economics profession, which can be “somewhat combative,” forces economists to be stronger communicators. Similarly, Fogli likened what economists do to what students do in debate. Fogli noted that economists have to present their papers and be able to debate, support and defend their ideas. Therefore, it seems intuitive that being successful in these areas requires strong communication skills.

Seeing the Broad Picture

Marie T. Mora, who is associate vice chancellor for strategic initiatives and professor of economics at the University of Missouri-St. Louis, discussed the lenses economists develop by studying both macroeconomics and microeconomics.

“That’s, I think, really key in terms of giving economists the broad picture,” she said at the 2021 Women in Economics Symposium. “We can see how different pieces are able to fit together in terms of our overall economy.”

“We can see how different pieces are able to fit together in terms of our overall economy.”
—Marie T. Mora

Using the example of health care, she said that economists want to take a macro—or overall—perspective while also knowing the importance of understanding what might motivate people at the individual level.

Economists’ training and tools thus allow them to be “able to take that big-picture view and to be able to narrow it down to the micro level,” she said.

In 2020, the U.S. homeownership rate rose a record high amount, but over the same period, the Black homeownership rate fell below its level recorded a decade ago, as the National Association of Realtors reported in February.

And with COVID-19 mortgage forbearance plans ending, there is concern that the homeownership gap will expand. To be proactive and anticipate this increase, communities may want to consider homeownership models that increase accessibility for Black homeowners.

Community land trusts, nonprofits that offer shared-equity homeownership, are one potential model.

The Damage to Black Homeownership

The Black homeownership rate in 2020 was the lowest of all racial groups’ at 43.4%, while in 2010 it was 44.2%, according to the National Association of Realtors report.

This damage occurred because of losses during the Great Recession, according to an essay in the 2021 book, “The Future of Building Wealth.”

“Black and Hispanic borrowers, who were disproportionately set up for foreclosure with predatory loans, lost their homes at around 1.8 times the rate of white borrowers,” during that time, wrote the authors of the essay, “Black Homeownership Matters (PDF),” which cited figures from a 2010 report (PDF).

How can community land trusts help address the racial gap?

Short Primer on Community Land Trusts

Organizations including Community Legal Resources Community Land Trust Project (PDF) and Community-Wealth.org provide information on community land trusts and how they work. Here’s a short overview.

Where they came from

A CLT is a model of shared-equity homeownership that emerged during the civil rights movement and was started by Black farmers to combat oppression, violence and eviction in the American South, as Grounded Solutions Network describes.

What they do

CLTs are nonprofit organizations that acquire and manage land upon which affordable homes can be developed. CLTs sell these homes to low-and-moderate income families at below-market rates but retain ownership of the land.

What homebuyers do

Homebuyers lease the land from CLTs for a nominal fee. In exchange for a CLT property at an affordable price, buyers agree to resell at a price that is affordable for future low-income owners.

How CLTs can be used

CLTs typically qualify for a 501(c)(3) charitable organization designation. Besides for needed homes, CLT land can be used for a variety of community needs—small businesses, commercial spaces, community gardens and rental housing.

What effects they can have

By requiring homeowners, tenants and neighborhood residents to have an active role in governance, CLTs transfer leadership, power and decision-making to residents, with a tool to:

• combat potential gentrification,
• preserve the neighborhood’s unique character, and
• reduce displacement of long-term residents.

Benefits and Challenges of Community Land Trusts

No single solution will close the racial homeownership gap, but it is important to consider solutions that advance racial equity in housing. Below are some of the benefits and challenges associated with the CLT model.

Benefits: Investment, Wealth Creation, Community Building

Efficient Investment—As we enter a period of recovery, state and municipal governments are trying to recover from significant losses in revenue, increased spending and the impact of the pandemic. Affordable housing models that make the most of each dollar invested may help. Community land trusts build and retain the effect of a one-time initial public or philanthropic investment through resale price restriction and equity-sharing agreements that provide affordability in perpetuity.

Wealth Creation—CLTs have been shown to build wealth for homeowners of color. A 2019 study conducted by Grounded Solutions Network, in partnership with the Lincoln Institute of Land Policy and Freddie Mac, found that the majority of lower-income families who participated in shared-equity homeownership were able to leverage it to purchase market-rate homes within a five- to seven-year period.

Affordability Preservation—With housing prices soaring, there is a growing opportunity to invest in ways that make housing affordable now and stretch that investment to protect the home as affordable for future generations. Affordable housing models that require a subsidy investment typically do not provide affordability in perpetuity.

Stronger and Equitable Communities—The inclusion of resident leaders and resident owners in governance allows leadership and decision-making for CLTs to be resident-led and community-based.

Stability—CLTs can help to stabilize neighborhoods by preserving access to land and housing over time. A 2011 Lincoln Institute of Land Policy study of shared-equity homeownership performance during the Great Recession found that conventional homeowners were 10 times more likely to be in foreclosure proceedings than CLT homeowners at the end of 2010.

Challenges of CLTs: Scale, Capacity, Funding

Scale—The primary challenge facing the community land trust sector is the ability to scale up. Shared-equity homes of all types remain well below 1% of the nation’s housing units.

“Grounded Solutions Network estimated in 2018 that there were 12,000 CLT homeownership units, at an average of 72 units per CLT (excluding those with none),” according to a July 13, 2021, article in community development publication Shelterforce.

CLTs are not the only solution, but rather a supplement to a whole host of solutions to improve accessibility.

Capacity—There is a limited number of experts who are knowledgeable about shared-equity models who can provide assistance to nonprofits interested in forming CLTs, which creates a constraint on the ability to scale up the model.

Funding—Investments are lacking to cover the difference between the fair market value or construction/acquisition-rehab costs of a home and the sale price that is affordable to a lower-income household. While funding levels for some federal homeownership programs, like HOME (HOME Investment Partnerships Program) and CDBG (Community Development Block Grant Program), have declined or stagnated, local governments have placed a higher priority on affordable rentals than on homeownership, as a May 18, 2018, Shelterforce article reported.

Interest in CLTs Is Growing

Interest in developing CLTs has gained traction among community organizations and governments seeking solutions to advancing equitable housing outcomes. More research is necessary to understand how CLTs can contribute to increasing Black homeownership while maintaining affordability.

To learn more about a CLT within the Eighth District, visit the website of Binghampton Community Land Trust located in Memphis, Tenn.

The surging U.S. housing market is one of the most significant economic trends of the last few years. The effects of rising housing demand have been intensified by supply-side constraints, like a tight labor market and materials shortages.

Yet the COVID-19 pandemic doesn’t fully explain these supply shocks. The sector’s labor issues have roots in long-term demographic trends and the 2007-09 global financial crisis. Rising demand, shortages of lumber and other materials, and policy shifts brought about by the pandemic have only placed additional stress on what was already a limited labor force.

Slow Labor Supply Recovery after the Financial Crisis

Before the global financial crisis, housing starts grew from 798,000 housing units in January 1991 to a high of 2.27 million in January 2006. As a result of the crisis, housing starts fell to a low of 478,000 in April 2009.

This drop started a decadelong downward shift in a wide spectrum of housing-related investment activity. As Charles Gascon documented in a 2019 article in the Regional Economist, residential investment fell from 6.7% of U.S. gross domestic product (GDP) at the peak of the housing bubble in late 2005 to 2.4% of U.S. GDP five years later. While it continued to increase throughout the 2010s, residential investment reached only 3.8% of GDP in the last full pre-pandemic year. From 1947 to 2007, only 1982 and 1991—both years that experienced a recession—saw a lower level of residential investment as a share of GDP.

Preexisting Labor Market Trends

During the 2010s, sluggish real estate activity greatly affected the labor supply. Large numbers of American-born construction workers permanently left the labor force between 2006 and 2011. As the figure below shows, the number of employed native-born construction workers fell from a high of just over 8.5 million workers in 2006 to 6.5 million workers in 2011, and it took the remainder of the decade to rise to 8.2 million employed in 2019.

The dislocations were even more severe when considering the entire construction labor force (which encompasses both employed and unemployed workers). The number of native-born workers fell from a high of 9.3 million in 2006 to 7.6 million in 2013, only returning to 8.6 million by 2019. National Association of Home Builders economist Natalia Siniavskaia attributes this to both demographic and macroeconomic trends (PDF): The aging of the U.S. population has resulted in decreased labor force participation rates over time, and as younger populations tend to have higher rates of educational attainment, the share of native workers involved in construction occupations has fallen.

Meanwhile, the number of foreign-born workers in the construction industry continued to grow, despite a deep slump after the financial crisis. From 2000 to 2006, the number of immigrant workers employed in the sector grew from 1.5 million to 2.7 million. It fell to 2.0 million in 2011 but rose to above pre-crisis heights in 2018.

The next figure illustrates the significance of immigrants to the employed construction labor force; the proportion of such workers rose to 24.6% of the labor force in 2013 and remained above that level through 2019. However, the increasing share of foreign-born workers has not completely made up for the falling share of native-born workers in one key regard: Siniavskaia noted that foreign-born workers are less likely to work in highly skilled trades that require years of education, like electricians and inspectors. Such highly skilled trades, unsurprisingly, have experienced the most severe shortages within the sector.

Pandemic Effects

In contrast to the slow recovery from the financial crisis, the policy response to the COVID-19 pandemic—such as relief payments and enhanced unemployment benefits—led to a rapid rebound in housing demand: Median sale prices are up over 25% since the first quarter of 2020, housing inventories are down and homes are selling faster than usual for higher than initially listed.

But the pandemic has exacerbated the construction sector’s existing supply issues and has created new ones. The physical supply chain has found itself under newfound stress, as shipping delays and reduced production capacity have produced widespread materials shortages. The pandemic’s impact can be seen most clearly in the Bureau of Labor Statistics’ producer price index, which reported sharp increases for final demand goods, less food and energy, in January 2022, with particularly high changes for construction machinery, appliances and electronic equipment.

The pandemic has also removed needed workers from the construction labor force. It is difficult to confidently estimate its effect because the pandemic also significantly disrupted data collection for the 2020 ACS, the survey we most rely on. Nonetheless, the available data (as well as anecdotal reports from business contacts) point to the pandemic continuing and exacerbating previously existing trends, with construction employment declining especially among immigrants. Indeed, all evidence points to a substantial decline in immigration to the U.S. in 2020 and 2021, with restrictions on international arrivals virtually stopping immigrant inflow.

As a result, the construction sector lost the immigrant population that helped to offset demographic aging and mass exits after the global financial crisis, just as housing activity started to surge to levels not seen since August 2006. Little wonder, then, that the construction labor market is so tight that firms have reported competitors visiting job sites to recruit high-skilled craftsmen.

Looking Forward

There is no single, clean solution to the supply issues facing the construction industry. The optimistic case for the relief of material supply shortages is fairly straightforward: The end of pandemic disruptions should eliminate supply bottlenecks, allowing production and transportation of needed goods to return to normal levels. Yet this appears less likely than initially hoped for. Chinese exports have continued to see disruptions due to COVID-19 mitigation actions, and the conflict in Ukraine has introduced new uncertainty into global networks by raising global oil prices. Due to these issues, many firms do not expect meaningful alleviation until 2023 at the earliest.

The workforce supply issues, in contrast, reflect longer-term demographic issues. The technological solutions that have boosted productivity in other sectors may not be as available in construction, because the labor-intensive nature of the construction industry makes labor-saving tech more costly and difficult to implement. For example, while robotics has become more popular in food service and warehousing, it is still nascent technology in the construction sector and practical only at large scale. To this end, research on productivity growth in construction has found varying effects, with some aggregate evidence pointing to flat productivity, while other analyses show positive growth. Though policy changes can boost immigration and alleviate chronic shortages, the construction industry will still have to deal with the effects of an aging population and a shortage of skilled workers.

Endnotes

1. According to the fall 2021 Home Builders Institute’s Construction Labor Market Report, the proportion of construction workers ages 55 and older rose to 20.3% in 2019, while the proportion from ages 25 to 54 (prime age) fell from 72.2% in 2015 to 69% in 2019.
2. A May 2021 National Association of Home Builders survey found that more than 90% of builders reported experiencing at least some shortages of appliances, framing lumber, plywood, and windows and doors.
3. See the January 2022 Beige Book.

The topic of bond yields has been frequently discussed since the Federal Open Market Committee in late 2021 and early 2022 began indicating that it would soon start making monetary policy moves that could affect bond yields. The FOMC raised the target for the fed funds rate in March and said further increases were likely to be appropriate.

But what exactly do people mean when they talk about bond yields? A bond yield is a numerical representation of a bond’s returns to a bond purchaser. A “yield curve” is used to get a sense of investors’ risk assessment. Why are the yields an important indicator for investors?

Understanding Bond Yields

First, let’s look at bonds. A bond is an instrument that pays one or more fixed payments at specified times. Selling a bond is a way by which the seller borrows from the buyer—or the buyer lends to the seller.

For that reason, it is important for the investors to consider the amount of compensation they will get in return. Looking at a bond’s yield is one way to do so.

There are multiple definitions and ways to calculate the bond yield, including current yield and yield to maturity.

Current Yield

Current yield is the expected annual return of a bond based on annual interest payment and the bond’s current price. Current yield differs from another type of yield, “coupon” yield, as the former takes into account the current market value of the bond while the latter considers the original face value.

This distinction is important because the market price of a bond can differ from its par or face value. To calculate current yield:

Current Yield = Annual Interest Payment / Current Market Value

We can see that current yield fluctuates depending on the market price of the bond. If the bond’s face value is $100 and pays an annual coupon payment of $4, then the coupon yield will be (4/100) or 4%. But if an investor buys the bond at a premium, purchasing it at the current market price of $105, the current yield will be (4/105), or around 3.8%, which is slightly lower than the coupon yield.

Bond prices and yields are inversely related: the higher the price, the lower the yield and vice versa, including for U.S. Treasuries, government debt issued by the U.S. Department of the Treasury.

Yield to Maturity

A bond’s yield to maturity (YTM) is the annualized interest rate that discounts the bond’s coupon and face value payoffs to the market price. That is, it is the interest rate that the bond holder receives on the bond. This calculation, which assumes that the payments are made to the investor in a timely manner, gives a fuller picture of a bond’s yield. An approximation of YTM can be obtained using a formula such as the following:

1. Start with (Face Value – Market Value) / Years to Maturity.
2. Add the result of No. 1 to Annual Interest Payment.
3. Divide the result of No. 2 by the result of: (Face Value + Market Value) / 2.

Treasury Yields Are an Indicator of Investor Confidence

Now that we know what bond yields are, we can start examining why they are an important indicator of the economic outlook to investors, even those who do not invest in bonds themselves.

Investors commonly consider Treasury yields. Since Treasuries are backed by the U.S. government, they are viewed as one of the safest investments and are used as a baseline for many calculations.

Economist Chris Neely, a vice president in the St. Louis Fed’s Research Division, says two things happen during “boom” times:

1. Investors require less incentive (extra expected return) to hold risky assets, so the spread between the yields of risky bonds and Treasuries declines.
2. Yields on riskless bonds tend to rise as borrowing demand for investment and consumption increases.

Conversely, when investors’ confidence level is low, the demand for Treasuries will increase, hiking up Treasuries’ prices and lowering their yields. Because of this, declining Treasury yields are often viewed as indicating a potential economic slowdown.

The graph above shows the daily market yield on the U.S. 10-Year Treasury. We can see the yield dropped significantly during the COVID-19-induced recession when investor confidence was low.

The Treasury Yield Curve Sends an Economic Signal

Treasuries with different maturities offer varying yields. A yield curve illustrates yields on debt of similar risk (e.g., Treasuries) across a range of maturities. In the U.S., one of the most common yield curves is the one drawn for Treasury securities.

The figure above shows yield increasing with maturity, which is the most common shape of a yield curve.

Shorter-term rates tend to move with the Fed’s policy rate, or federal funds rate. Investors who tie up their money for longer periods tend to expect a higher payoff as they fear large capital losses on long-term debt, so bonds with longer maturity often have higher yields.

However, when investors lose confidence in the economy, it is not uncommon for the yield curve to invert. An inverted yield curve, where short-term yields exceed long-term yields, potentially happens when long-term investors expect short-term interest rates to decline in the future, so they try to lock in the current yields.

Notes

1. Note that a bond does not have to be issued at its par value.
2. More information can be found in a 1986 Interfaces article, “A Note on Yield-to-Maturity Approximations.”

The Federal Reserve Act instructs the Federal Reserve to use monetary policy to promote maximum employment, stable prices and moderate long-term interest rates. In practice, the Fed “leans against the economic wind,” tightening policy when inflation threatens the economy and easing policy when the economy weakens. This article explains one way to gauge the stance of monetary policy; that is, how to measure the Fed’s instrument settings in light of the economic wind.

Measuring Monetary Policy Settings

Since 2008, the Fed has conducted monetary policy using both conventional and unconventional tools. Managing short-term interest rates serves as the Fed’s key conventional tool while purchasing longer-term bonds and forward guidance have been its main unconventional tools.

When the Fed is implementing conventional policy, analysts commonly use the level of short-term interest rates to (crudely) measure the stance of policy. High short-term interest rates tend to contract economic activity while low short-term interest rates tend to do the opposite.

While short-term interest rates controlled by the Fed continue to serve as an important measure of monetary policy, extended spells at the effective lower bound of interest rates, combined with new monetary policy tools, mean that we need a summary measure of monetary policy’s combined settings to gauge the stance of policy.

One such measure of monetary policy is the “shadow” federal funds rate. Based on a model of interest rates of many maturities, the shadow rate is an estimate of what the Fed’s overnight interest rate would be if the FOMC extended its policy range below zero, which it currently does not do. This captures how the Fed’s non-interest rate tools, including large-scale asset purchases and forward guidance, affect the current and expected future path of the federal funds rate.

Yet the neutral level of the federal funds rate—one that cannot be characterized as either tight or loose—changes over time. Thus, whether a given interest rate level stimulates or contracts economic activity depends on its relation to this moving target.

One approach to estimating the long-term neutral rate is to look for an indicator in financial markets that suggests what the short-term rate will be far in the future, after any current economic squalls have passed. A long-term Treasury forward rate is precisely such an indicator: It is related to the short-term interest rate expected to prevail at a particular date in the future, derived from market prices today.

Comparing the federal funds rate or a shadow federal funds rate to a long-term Treasury forward rate therefore allows us to characterize the degree of tightness or ease the Fed is applying to the economy if one assumes current conditions are average or normal. But, of course, current conditions may not be average, as the next section explores. The figure below shows how this measure of the Fed’s monetary policy settings has varied each month between December 1971 and December 2021.

Measuring the Strength of the Economy

The impact of monetary policy on the economy depends both on how tight or easy the Fed’s policy settings are at any time (as shown in the figure above) and on the economy’s condition. If the economy is very weak—for example, with the unemployment rate in double-digits—then an accommodative monetary policy is likely to be appropriate, with the federal funds (or shadow) rate well below the neutral rate. The Fed’s lean-against-the-wind policy attempts to counteract the economy’s weakness. If the economy is very strong—for example, with a very low unemployment rate and rising inflation—the Fed is likely to set the federal funds rate closer to, or even above, the neutral rate.

The figure below compares the summary measure of Fed policy described above to the output gap, i.e., the strength of the economy. The Fed’s monetary policy settings track the state of the economy. When the output gap is positive—which occurs near business-cycle peaks—the Fed runs a tighter monetary policy. Conversely, when the output gap is negative—when the economy is in or recovering from a recession—the Fed sets a looser monetary policy. Again, this is how the Fed leans against the economic wind: The central bank exerts restraint when the economy is very strong and provides support when it is very weak.

Combining the Fed’s Instrument Settings and the Economic Windspeed: The Stance of Monetary Policy

The figure below characterizes the stance of Fed monetary policy since the beginning of 1972. The line represents the difference between the monetary policy settings and the economy’s output gap at a quarterly frequency. For example:

• When the stance is zero, monetary policy approximately offsets the economy’s strength or weakness.
• When the stance is positive, monetary policy is restrictive or tight, with the degree of restraint exceeding the strength of the economy.
• When the stance is negative, monetary policy is accommodative or easy, with the degree of ease exceeding the weakness of the economy.

The Stance of Monetary Policy Has Fluctuated Significantly during the Pandemic

According to the measure in the figure, the most restrictive stance of monetary policy in the last 50 years occurred in the second quarter of 2020, when the COVID-19 crisis had its maximum impact. The economy was very weak, with real GDP some 10.5% below its potential. Although the Fed eased monetary policy aggressively using several of its tools, it was not enough to counteract the economy’s weakness.

Conversely, one of the most accommodative stances of monetary policy since 1972 occurred in the fourth quarter of 2021. According to the Congressional Budget Office’s estimate, the economy had completely recovered by the third quarter of 2021, and was 1.4% above its potential in the fourth quarter of that year. Monetary policy settings, meanwhile, remained relatively easy.

The COVID-19 period illustrates how important it is to measure both the Fed’s monetary policy settings and the economy’s current condition to gauge the stance of monetary policy. Even though the Fed did not change its target range for the federal funds rate between mid-March 2020 and mid-March 2022, the ultimate impact of monetary policy on the economy fluctuated dramatically. Thus, it’s important to gauge monetary policy against the strength of the economy and adjust accordingly.

Endnotes

1. See Section 2A, “Monetary Policy Objectives,” in the Federal Reserve Act.
2. See “Policy Tools.”
3. See “Monetary Policy Principles and Practice.”
4. The lower limit of the federal funds rate target range was zero between Dec. 16, 2008, and Dec. 16, 2015, and again between March 16, 2020, and March 16, 2022.
5. See Jing Cynthia Wu and Fan Dora Xia, “Measuring the Macroeconomic Impact of Monetary Policy at the Zero Lower Bound,” Journal of Money, Credit and Banking, Vol. 48, Nos. 2-3, March-April 2016. See the Atlanta Fed for more explanation and the current shadow rate.
6. See Michael D. Bauer and Glenn D. Rudebusch, “Interest Rates Under Falling Stars,” American Economic Review, Vol. 110, No. 5, May 2020.
7. The output gap is the difference, in percent, between the current actual and the current hypothetical full-employment level of output. See the section “Budget and Economic Data” on the Congressional Budget Office’s website for an explanation of potential real GDP and the output gap.

Sometimes it’s the skills and interests outside one’s particular academic focus that help get the job done or bring new opportunities. Everything from pauses for parenting to television show tweeting aided the careers of three economists who described those experiences during interviews on the St. Louis Fed’s Women in Economics Podcast Series.

• Kristen Broady, now a senior economist and economic advisor at the Federal Reserve Bank of Chicago, told the story of how live tweeting about a television show led to an opportunity to consult for it.
• Veronique de Rugy, senior research fellow at the Mercatus Center at George Mason University, said being a generalist means she has to learn a lot.
• Hannah Rubinton, economist at the St. Louis Fed, explained how having to interrupt work for parenting duties could sometimes be helpful.

Kristen Broady: Consulting for “The Quad”

Broady’s areas of research have included mortgage foreclosure, labor and automation, and racial health disparities, according to her bio on the website of the Chicago Fed, which she joined in February.

But it was another area of expertise—knowing what it was like to teach at historically Black colleges and universities (HBCUs) in Georgia—that led to an unusual opportunity: serving as a television show consultant.

Broady had written a paper called “Dreaming and Doing at Georgia HBCUs: Continued Relevancy in ‘Post-Racial’ America.” When BET’s “The Quad,” which followed the challenges faced by the newly elected president of a fictional Georgia HBCU, started airing in 2017, it became Broady’s “very favorite television show ever,” she said.

Broady told interviewer Mary Suiter, assistant vice president and Economic Education officer at the St. Louis Fed, how she came to be a consultant for the second season of the show, which turned out to be its last. The podcast episode was released in July 2021. (At that time, Broady was a fellow at the Brookings Institution.)

“I would tweet [about] the show during the first season. All of my friends knew: Don’t call me, don’t text me, because I’m going to be tweeting the show,” Broady said. “And so, when [producer] Felicia Henderson followed me on Twitter, it was like the greatest thing in the world.”

Broady sent Henderson a direct message on Twitter and ended up sharing her paper with the producer. Broady didn’t hear anything for a while, but then Henderson’s assistant reached out and said the producer wanted to talk to Broady.

“[Henderson] said that she had shared my paper with the whole team and all of the actresses and actors. And so, I ended up becoming a consultant,” Broady said. “It was the wildest thing in the world. I got to go to set, meet all of my favorite stars.”

But the importance was being able to “contribute to the accuracy of the representation of HBCUs, and I think that that show did that fairly well,” Broady said. “And I’m sorry that it ended.”

Veronique de Rugy: Specializing as a Generalist

In addition to her research work, de Rugy has risen to prominence as a syndicated columnist.

But the French native’s launch of a career in the U.S. wasn’t easy. Among the challenges was adjusting to different ideologies at organizations where she worked, she told Suiter in a November 2020 podcast episode.

De Rugy has worked in organizations including the Atlas Economic Research Foundation, the Cato Institute and the American Enterprise Institute. She was “not in my environment” ideologically at AEI, de Rugy said, so she had to learn to be a better scholar.

“It wasn’t just about being an ideologue and a warrior for freedom, and that was just really good for me,” de Rugy said.

She is still learning, de Rugy said, and the process is compounded by the fact that she’s a generalist who changes topics frequently and puts herself in situations where she has to learn a lot.

“There’s always a little part of me that thinks, ‘What is it that you don’t know that you don’t know that you don’t know?’” she said. “I’ve made mistakes, like everyone, and I’ve learned from them, and I’m much less reckless than I used to be, that’s for sure.

“Certainly, I moved to the U.S. because I wanted to be intellectually stimulating. Well, I think my career was really stimulating.”

Hannah Rubinton: Being “Forced to Walk Away” from a Puzzle

Rubinton’s research interests include macroeconomics and economic geography. While she was working toward her Ph.D. in economics at Princeton University, she had a baby during her third year and was pregnant during her final year.

That meant she had more obligations outside the Ph.D. program than most of her classmates, she said, which could be a blessing and a challenge, Rubinton told interviewer Laura Girresch, senior manager in External Engagement and Corporate Communications, in a December 2021 podcast episode.

Having kids “keeps your perspective much healthier” in an ambitious environment, Rubinton said. Sometimes even the challenges of juggling parenting and Ph.D. work ended up being helpful.

“At times, it was really hard, particularly when I had a deadline,” Rubinton said. “I used to drive my husband crazy because we would often walk together to go pick up our daughter, Ruth, from daycare, and he would text me, and he would say, ‘Are you leaving?’ And I’d say, ‘Five more minutes,’ and I’d get distracted, and then I would be late.”

Rubinton said she can get “obsessed” when working on models.

“You’re working on some math or some code, and you have a bug, and you’re just like, ‘I need to figure this out. I need to figure this out.’ And you don’t want to walk away from it.

“But I can’t tell you the number of times where I’ve been forced to walk away from it because I had a kid,” Rubinton said. “And then I figured out the problem immediately the next morning. And sometimes, walking away from it is the best thing you can do.”

This post is adapted from “The Pitch,” the first of three chapters in a series about the Investment Connection program, which offers a bridge between community-based organizations and programs and investors. This story, which has been edited for length, was originally published March 4 by Fed Communities, a project that amplifies the Fed’s work in low- and moderate-income communities and other underserved areas across the U.S.

Tamika Staten was born and lived much of her childhood in North St. Louis City, where her “mom, grandma and great-grandma were raised,” she said. “North St. Louis will always have a special place in my heart. A lot of people look at North St. Louis and see a poverty-stricken area with dilapidated homes and abandoned businesses. I see all of my childhood memories and a bunch of neighbors from the same background as me. I love North St. Louis City, and I serve it proudly.”

North of Delmar Boulevard is home to most of the city’s Black history. For generations it was the only place in St. Louis open to people of color. Black Americans created businesses and joined professions and built stately brick Victorian homes for their families. Then came the 1930s, when banks began using redlining to deny mortgages to prospective borrowers in predominantly Black neighborhoods. The same story played out in cities around the country with the same ugly results.

Today, most of the vacant lots in St. Louis City are concentrated north of Delmar. Redlining policies have contributed to broader inequities—in unemployment, income and life expectancy—as well. A 2014 study found that 95% of residents living in the 63106 ZIP code in North St. Louis City were Black, 24% of residents were unemployed, and 54% lived below the poverty line, with a $15,000 median household income and a life expectancy of 67 years. In the 63105 ZIP code, just 10 miles away in the St. Louis County suburb of Clayton, 78% of residents were white, 4% were unemployed, and 7% lived below the poverty line, with a median household income of $90,000 and a life expectancy of 85 years. (See infographic.)

In 2014, when she was 25, Staten began work as a teller at a credit union. She later moved over to Prosperity Connection as a financial education coach. The nonprofit affiliate of the credit union provides financial literacy and credit coaching services.

When Eddie, a new client, arrived at Staten’s office, she felt an immediate bond. Eddie was from North St. Louis, too, and he needed help. He’d maxed out his credit cards, had loan debt to his bank and unpaid medical bills in collection, and owed a friend several thousand dollars. Eddie, who is about 40, had three jobs, but he was still drowning.

On top of that, his ancient car appeared near death, and his credit union had just turned him down for an auto loan in language that was very direct. “He went home and cried about it,” Staten said. Fortunately, the loan officer didn’t just say “no.” He referred Eddie to St. Louis Builds Credit (STLBC), which connected him with Prosperity Connection—and to Staten, who understood how poverty felt.

When Eddie arrived, Staten helped him create a budgeting regimen. Eddie began working on improving his credit. Within a year, Eddie had transformed his finances. His credit score is 725, up from the low 500s. He has no personal loan debt, very little credit card debt, and the beginnings of some savings. Best of all, when he returned to the credit union that had initially turned him down, he signed for a car loan at the lender’s lowest rate at the time.

Eddie reaches out occasionally to let her know how he’s doing. Staten is confident he will be financially stable. “I love that for anybody, but it feels really good helping somebody from the community I’m from,” she said.

New ideas to help Eddie and others

Efforts to bolster the credit standing of residents in low- and moderate-income (LMI) communities in St. Louis, particularly minority residents, received a boost in 2019. David Stiffler served as the president of the Equifax Foundation and a funder of Prosperity Connection. Stiffler approached Prosperity Connection’s then-executive director, Paul Woodruff, with an idea: Would Prosperity Connection be willing to expand beyond its scope of providing credit counseling to serve as the backbone organization to build a citywide movement for financial health?

The effort would be patterned on Boston Builds Credit (BBC), a nonprofit founded in 2017 and also funded by Equifax. BBC supports credit-building programs, conducts informational campaigns, and advocates on financial issues that affect LMI communities. A person, household or community is LMI if income is below 80% of an area’s median income.

“David said, ‘You might do this,’” Woodruff said. “It was an invitation from our funder to look at a different level of impact.”

To start a similar effort in St. Louis, Woodruff convened other organizations that help people improve their financial health. The partners agreed to launch STLBC as a pilot project in the Gravois-Jefferson Corridor in St. Louis City in 2020.

The Equifax Foundation provided money to help get STLBC off the ground, but the project required more financial support. Woodruff had heard about a program called Investment Connection. Events held by the Federal Reserve Bank of St. Louis saw nonprofits pitching their programs to a room full of bankers and other prospective funders.

He decided to submit a proposal.

Building bridges between banks and CRA-eligible programs

Since the Community Reinvestment Act (CRA) passed in 1977, banks have been encouraged to lend throughout their communities, including in LMI communities. The CRA was a response to redlining, the discriminatory pattern of denying credit based largely on the ethnic or racial composition of certain communities.

Banks and financial institutions provide support to community organizations through loans, investments and grants, and technical services. To receive CRA consideration, a bank must be able to show that support for a particular project meets the needs of the communities within which it operates. Bank examiners from regulating agencies such as the Federal Reserve System review each activity to determine if, in fact, the bank’s activity is eligible for CRA credit. If it is, the CRA credit is applied to a bank’s overall CRA rating, which can range from “outstanding” to “substantial noncompliance.”

A bank needs a positive CRA rating to take certain actions, such as opening a new branch. Banks have tended to be risk averse in picking CRA-eligible projects, leaning towards activities, loans or investments that have counted for CRA purposes in the past and avoiding those outside of their regular areas of business. Investment Connection is intended to “expand the pie” of CRA funding by encouraging new, innovative ways for bankers to support the communities they serve.

The Federal Reserve Bank of Kansas City started Investment Connection in 2011, loosely modeling its events on the Shark Tank program, an American reality television series where entrepreneurs pitch their ideas to a panel of investors.

Ten years after holding the first Investment Connection event, the Kansas City Fed can trace more than $52 million in loans, investments and grants, and technical services to Investment Connection. The total is more than $60 million for the eight participating Reserve Banks, which include the Atlanta, Cleveland, Dallas, Minneapolis, New York and Richmond Banks in addition to the St. Louis Fed and Kansas City Fed.

The St. Louis Fed was the first Reserve Bank to adopt the model Kansas City developed. Since 2017, St. Louis has held events in seven cities. These events have yielded $2,726,020 in grants, loans and investments for community and economic development projects.

Stacy Clay agrees with Woodruff’s thinking

Stacy Clay is director of community affairs with First Bank, a family-owned bank that has served the St. Louis metro area for more than 100 years. He attended the Investment Connection event where Woodruff made his pitch. While Clay says it’s personally satisfying to see the results of CRA-related investments, that’s not the goal.

“It’s not my money,” he said. “We want to be able to say to our senior leadership, ‘Here’s what the investment has yielded.’”

Before joining First Bank, Clay was deputy superintendent for the St. Louis Public Schools, a large urban school system. Before that, he directed a college-access nonprofit called College Summit and taught kindergarten and first-grade students. “I understood the link between strong communities, strong families and strong people. It’s hard to get a strong, healthy student coming out of a rundown, dilapidated environment. These characteristics are bundled, they just are.” The 18-year gap (PDF) between the life expectancy of residents in North St. Louis and Clayton is just one example.

In the case of STLBC, what impressed Clay was the chance to change the credit system, which determines how credit scores are assigned and used. Clay appreciated that Woodruff’s pitch for STLBC didn’t just talk about providing a new pathway to credit counseling. Instead, Woodruff talked about a community-wide movement to improve credit health, something that could improve credit scores of individuals and, at the same time, reduce income inequality and the racial wealth gap.

According to figures provided by the St. Louis Fed, there is a distinct racial wealth gap in St. Louis when housing values are used as a proxy for wealth. In St. Louis City, the median house value for white residents is $170,000. For Black residents, the median house value is $65,000. In St. Louis County, the median house value for white residents is $250,000. For Black residents, the median house value is $100,000, according to the American Community Survey 1-year estimates for 2019.

Clay reached out to Woodruff with an offer of $50,000 paid over two years. The two entered into a service agreement that involves a credit coach with STLBC and a First Bank loan officer working with bank customers to help them improve their credit scores to the point that they’re eligible for a small business or mortgage loan.

Investment Connection was the agent that brought the two together.

Pre-vetted proposals make it easier for banks to diversify investments

When a bank considers investing in a project for CRA credit, its CRA officer vets both the nonprofit organization and the proposal. This preliminary process for assessing CRA creditworthiness can take hours for a single proposal. Even then, the bank doesn’t know for sure if an investment will receive CRA credit until the examiner arrives to do the evaluation, which could be as much as five years later. If the examiner finds the activity ineligible, if the activity is large enough, it could result in a negative CRA rating, even if the activity itself was good for the community.

Investment Connection flips that process around. CRA examiners vet organizations and proposals before banks invest, reducing the risk they take in committing time and money to a project.

Jim Enright, a senior bank examiner with the Kansas City Fed, was the first examiner to work with Ariel Cisneros, a community development advisor at the Bank’s Denver branch, to test the new Investment Connection model. Cisneros and Tammy Edwards, senior vice president of the Community Engagement and Inclusion Division at the Kansas City Fed, developed the program. Enright has since reviewed almost all the nearly 1,500 proposals submitted in the Kansas City Fed District since 2011.

Enright likes that CRA rules offer flexibility by recognizing that a bank’s performance varies based on the markets that they are in. “[Evaluating the performance of a bank is] a gray area, it’s not black and white. It really forces the examiner to use their judgment in evaluating an institution.” The rules recognize that one bank differs from another bank in another part of the state or country.

That subjective element of the regulation is the reason why no Reserve bank will guarantee that an Investment Connection activity will receive CRA credit. Instead, the Reserve banks offer a yay or nay on whether the proposal appears eligible. Proposals on the bubble don’t get moved forward.

“If the CRA examiner says ‘no,’ then you don’t put it on the Investment Connection website,” said Cisneros. “There’s a lot on the line. If a bank makes a loan or investment and they don’t get credit, that could come back to bite us. But that hasn’t happened. We take it seriously, that review.”

An organization does not have to be one of the presenters at an Investment Connection event to benefit from the CRA review. Once its proposal is vetted and placed on the Investment Connection website, the organization is free to shop it around to banks, and banks can search the website for vetted projects at any time.

St. Louis Fed measures progress, adds to the Investment Connection model

Neelu Panth brought a background in social work and program evaluation to her work with the St. Louis Fed, and she applied it to Investment Connection. When the St. Louis Fed adopted the program in 2017, she and her colleagues worked with the Brown School of Social Work at Washington University to develop a logic model—a structured set of results they hoped to achieve—that guides the program to this day.

Since then, Panth and her colleagues have fielded several surveys to assess whether and how well Investment Connection was helping to create a bridge for nonprofits and funders to meet community needs. The results prompted the team to add meetings and other resources to the Investment Connection process. The goal is to build relationships and partnerships that strengthen the system within which CRA investments happen.

The St. Louis Fed’s District includes all of Arkansas and parts of six other states. That’s a lot of ground to cover. Results improve when the team gets to know a community before holding an Investment Connection event there. “Every Investment Connection has a coffee and conversation series in advance of it,” Panth said. “It allows us to understand the environment and to understand what relationships already exist and how we can leverage those for Investment Connection.”

The team gets high marks from other Reserve Banks for the quality of their CRA Investment Connection training. The St. Louis Fed provides information about the CRA, then bankers and nonprofits provide advice based on previous Investment Connection events. Both the in-person training and a series of six training videos build capacity and add value for nonprofits.

The team offers one-on-one coaching to be sure the pitch and the ask are on point. A lot of nonprofits want a grant, Panth said. Banks are more interested in loans. “We would say, we think you have assets that you can leverage towards a loan or a program-related investment,” Panth said.

Of the types of funding made through their program so far, 45% are loans, 30% are grants, and 25% are equity investments. In reviewing program participation, the St. Louis Fed team found that bankers and foundations were not talking to each other. “How do we increase communication?” Panth asked. “How do we grow the capital stack for nonprofits through diverse sources?”

When a survey showed the need for funders—including more diverse funders—at the table for Investment Connection, the St. Louis team made that happen. “We invited foundations, corporations and banks,” Panth said. “We saw an immediate connection. A banker was saying, ‘I did not realize this funder was in the same neighborhoods working with the same organizations. How can we partner?’”

Now named the St. Louis Community Development Funders Forum (CDFF), this group was inspired by a similar effort that the St. Louis Fed began in the Mississippi Delta region in 2019.

The CDFF meets every month. “We look at how to, as a diverse funding community, come together and look at our region from an aligned perspective and leverage federal and local funding,” Panth said.

The forum also builds a cohort of funders likely to participate in future Investment Connection events.

For an unabridged version of “The Pitch” and the two following chapters in the Investment Connection series, visit Fed Communities.

March is Women’s History Month, and this year the theme in the U.S.—set by the National Women’s History Alliance—is “Women Providing Healing, Promoting Hope.” The theme represents a celebration of the tireless work of caregivers and frontline workers during the COVID-19 public health crisis. It also acknowledges the many contributions of women across history who have provided both healing and hope.

Women’s roles, contributions and accomplishments are increasingly being acknowledged and appreciated. Yet there is still a need to pause in March and celebrate women’s history because many gaps remain, despite significant progress.

This blog acknowledges and celebrates the contributions of all women: those receiving income reported on W-2 and 1099 forms, and those who don’t receive compensation even though they use their considerable skills and talents to care for their families and to better their communities through unpaid volunteer work. This blog post also provides a cautionary note: Evidence indicates that many of women’s past economic gains are at risk. Gender pay equity and a reducing of occupation segregation by gender may help propel women forward, as may greater gender parity in the daily operation of households.

A History of Caregiving at Home and Work

For generations, women have provided healing and hope to their families and their communities. Traditionally, much of this care and domestic work is unpaid. If it were compensated, even at the minimum wage, women would conservatively make an additional $1.48 trillion annually. Even in paid positions, women are more likely to be in care-related industries than men. Prior to the pandemic, they were overrepresented in the care workforce: working as caregivers in hospitals, plus as educators and caregivers in classrooms. In 2019, they comprised 77% of the 28.9 million workers in the following occupations:

• Education, training and library services
• Health care practitioner and technical occupations
• Health care support
• Personal care and services

Today’s percentage is not that different from those in the past. Although the figures are not directly comparable due to the government’s updating of its occupation codes, in 1994, women made up 80% of workers in these four broad occupations.

Steadfast Managers of Households

Historically, these same women have successfully managed the operation of their homes. Women’s greater caretaking and caregiving continues today (PDF). Prior to the pandemic, the Bureau of Labor Statistics’ American Time Use Survey showed that married mothers who work full time and have young children performed more of the caring activities and general operation activities for their families than fathers. For example, working married mothers of children under the age of 6 reported spending an average of almost an hour more a day taking care of their children than working married fathers reported spending. These mothers also spent more time doing housework, cooking and related cleanup, leaving almost an hour less time for leisure.

With changing family compositions, there has been growth in households headed by single parents. Many of these parents are mothers who must perform all the caring and household management duties. Furthermore, women of color are more likely to be single mothers of minors than are white women, with over a quarter of Black prime-age (ages 25-54) women and nearly a fifth of Hispanic/Latina women being single moms, according to our calculations of data from the 2020 American Community Survey. These women balance many roles: breadwinner, house manager, and caregiver.

The Pandemic’s Effect on Women, Especially Moms

During the pandemic, many women continued to work in these essential jobs while risking their health, and millions more exited the workforce to care for their children and parents. Although the participation rate has rebounded, it is well documented that during the pandemic, the attachment of women to the labor force fell below 55% for the first time since February 1986. This decline coincided with reports about women leaving the labor force to care for their children and parents.

During the pandemic, the attachment of women to the labor force fell below 55% for the first time since February 1986. This decline coincided with reports about women leaving the labor force to care for their children and parents.

The pandemic tested these mothers’ ability to use their skills and limited time for caring for their families and for their jobs. Just as the COVID-19 public health crisis is receding, inflation is placing additional demands on the skills of moms to manage the financial and daily operation of their households.

Battling adversity is not new for women and their families. Although the overall jobless rate was at a 50-year low prior to the pandemic, the United Way of Northern New Jersey estimates that prior to the pandemic, 42% of U.S. households were ALICE (asset limited, income constrained, employed). The median earned by women in health support and personal care and support occupations was two-thirds of the median weekly earnings of $917 for all workers in 2019, according to Bureau of Labor Statistics data. The typical woman child care worker’s (personal care and services occupation) earnings were 54% of economy-wide median earnings.

These women had difficulty meeting unexpected bills and figuring out how to pay for the rising costs of child and health care. Moreover, they were less likely to receive benefits (PDF) like paid family and medical leave, putting them in more precarious financial positions just prior to the COVID-19 pandemic.

Good News: We Can Prevent History from Repeating

As society continues to emerge from the pandemic, one of the many opportunities it faces is to set goals for prosperity and equity higher than conditions just prior to the pandemic. Setting pre-pandemic economic activity as the target could place women and their families in precarious economic positions.

Instead, society can build on the relief and recovery efforts over the past few years and reimagine how it wants women and their families to thrive and prosper.

Closing gender gaps can help overall economic growth. Supporting all women who provide healing and hope—whether through paid or unpaid work—could raise productivity, expand the economy, and support an inclusive recovery.

Notes and References

1. 1994 is the year of the Bureau of Labor Statistics’ earliest published estimates for these occupations.

During the COVID-19 recession, the Federal Open Market Committee (FOMC) reduced the target range for the federal funds rate to near zero and began large purchases of U.S. Treasury securities and agency mortgage-backed securities. Although the recession ended nearly two years ago, U.S. monetary policy settings remain set near peak accommodation—with the policy rate only 0.25 percentage points higher now and the size of the Fed’s balance sheet at nearly $9 trillion.

The Federal Reserve has a mandate to promote maximum employment and price stability. The labor market has fully recovered from the recession by nearly every measure, and it has gone beyond pre-recession levels by several measures. Moreover, inflation is running well above the 2% rate that the FOMC equates with price stability, and monetary policy has not been reset for these macroeconomic conditions. That is why it is necessary for the FOMC to remove monetary policy accommodation.

U.S. Economy in Expansion Phase

The U.S. economy has shown tremendous resilience even though the pandemic is ongoing. The macroeconomy, which recovered quickly from the recession, is in the expansion phase of the business cycle, as real GDP is higher than it was at the previous peak (in the fourth quarter of 2019). The same is true for real personal consumption expenditures, which are not only above their level at the previous peak but also above a trend line drawn from 2011-2019.

U.S. labor markets are also very strong, according to key metrics. For example, the unemployment rate has declined rapidly since the recession ended, falling to 3.8% in February. We can also look at broader measures of labor market performance, such as the level of activity measured by the Kansas City Fed’s Labor Market Conditions Index, which is above pre-pandemic levels and suggests that labor market conditions are the best they have been in years. Another way to assess the state of the labor market is to look at the ratio of officially unemployed workers to job openings, which has been at all-time lows in recent months. In February, the ratio was 0.56, and there were about 5 million more job openings than unemployed people.

Despite geopolitical risks, the U.S. economy is expected to grow faster than its longer-run potential growth rate and labor markets are likely to continue to improve this year.

Inflation Running Well above Target

Inflation has surprised substantially to the upside since mid-2021. The FOMC’s 2% target is based on headline PCE (personal consumption expenditures price index) inflation, which measured from a year ago was 6.1% in January. Core PCE inflation (which excludes food and energy) was 5.2% during that period. Both of these measures are well above 2% and at their highest values in nearly 40 years, as shown in the FRED figure below.

Given the FOMC’s focus on achieving an inflation rate of 2% on average over time, we can look at a five-year centered average inflation rate using actual data from the last three years and the median projections from the FOMC’s March Summary of Economic Projections (SEP) over the next two years, for instance. Based on those numbers, the average from 2019-2023 would be 3% for headline PCE inflation and 2.9% for core PCE inflation—both above 2%.

Initial Monetary Policy Response

How did U.S. monetary policy initially respond to the inflation shock? At its November 2021 meeting, the FOMC announced that it would begin reducing the pace of its asset purchases that month. Then in December, the FOMC agreed to speed up the pace of reduction and end the asset purchases earlier (in mid-March) and also projected more policy rate increases for 2022 in the December SEP than it had previously.

The monetary policy settings hadn’t changed much at that point, but the FOMC’s forward guidance was reflected in financial market pricing—for example, with two-year and five-year Treasury yields increasing about 100 basis points from early October until the invasion of Ukraine by Russia in late February. This put us in a better position to control inflation over the next few years.

Next Steps for Monetary Policy

The FOMC must now follow through with policy rate increases and balance sheet runoff. Otherwise, we risk squandering policy credibility with respect to the 2% inflation target.

In March, the FOMC decided to raise the policy rate from near zero with ongoing increases likely to be appropriate. Although the FOMC voted to increase the target range for the federal funds rate by 0.25 percentage points, I advocated an increase of 0.5 percentage points. Furthermore, the latest SEP indicated that the median FOMC participant is now projecting an even higher policy rate at the end of this year and the next two years than before. In particular, the median federal funds rate projection for 2022 is 1.9% in the latest SEP (compared with 0.9% in December) and 2.8% for both 2023 and 2024 (compared with 1.6% and 2.1%, respectively, in December). And as noted in the post-meeting statement and in Fed Chair Jerome Powell’s press conference, the FOMC expects balance sheet reduction to start at a coming meeting.

In my view, getting underway with the removal of accommodation was appropriate given the strong real economy and the ongoing inflation shock. I believe that the FOMC should raise the policy rate to 3% by the end of the year and implement a plan to quickly reduce the size of the Fed’s balance sheet. Going forward, the extent and pace of these actions can be adjusted if macroeconomic conditions evolve differently than we expect today. And, of course, we must monitor risks, such as developments in the Russia-Ukraine war and their potential impact on the U.S. economy and inflation. But forthright and transparent monetary policy actions designed to keep inflation under control will give the U.S. economy the best possible chance at a long and durable expansion.

Endnotes

1. See my related presentation on March 2, 2022, “Removing Monetary Policy Accommodation.”
2. See the FOMC statement on March 16, 2022, and the On the Economy blog post published March 18, 2022, “President Bullard Explains His Recent FOMC Dissent.”

The burst of inflation that followed the COVID-19 crisis and the expansionary policy of international central banks, including the Federal Reserve, has returned the topic of price controls to the news. For example, recent articles have advocated forms of price controls to reduce U.S. inflation and achieve other goals.

This article reexamines price controls, discussing their history, operation and disadvantages, and economists’ views on the policy. It explains why most economists believe broad price controls to be costly and ineffective in most situations.

Price controls are government regulations on wages or prices or their rates of change. Governments can impose such regulations on a broad range of goods and services or, more commonly, on a market for a single good. Governments can either control the rise of prices with price ceilings, such as rent controls, or put a floor under prices with policies such as the minimum wage. The following table shows some examples of common price controls.

The History of Price Controls

Price controls have a long history: The Code of Hammurabi prescribed prices for goods 4,000 years ago, and the Massachusetts and Virginia colonies did likewise 400 years ago. Governments have commonly restricted prices during wartime, with all major belligerents instituting broad limits on prices during World War II. Western countries commonly employed broad price controls into the 1970s. The U.S. government last used broad controls in a series of schemes from 1971-74 following the withdrawal of the dollar from the gold standard. Many developing countries control the prices of staples, sometimes combining price controls with subsidies.

The Impact of Price Controls

Let’s consider the impact of price ceilings. High prices have two economic functions:

• They allocate scarce goods and services to buyers who are most willing and able to pay for them.
• They signal that a good is valued and that producers can profit by increasing the quantity supplied.

That is, prices allocate scarce resources on both the consumption and production sides. Price controls distort those signals.

The next figure shows a stylized supply-demand graph for a competitive market in which the equilibrium price-quantity pair would be defined by the point at which the supply and demand curves cross, at {P_E, Q_E}. In the presence of the price ceiling, however, consumers want Q_D units, while the suppliers are willing to offer only Q_S units. Q_D is much greater than Q_S and the difference is a shortage of the product (Q) at the price ceiling.

The next figure similarly shows how a price floor, such as a minimum wage, changes the equilibrium {price, quantity} combination in a competitive market. In this figure, the price floor produces a glut of supply—for example, unemployment in the case of a minimum wage.

Costs of Price Controls

Price controls have costs whose severity depends on the broadness of the control and the degree to which it changes the price from the free-market price. The costs include the following:

• A government bureaucracy and law enforcement must be funded to enforce the controls.
• Goods and services are allocated inefficiently, both in consumption and production.
• Competition shifts from production to political markets as firms attempt to influence price-setting decisions.
• Widespread evasion of price controls promotes disrespect for the law.
• Suppressed inflation appears when temporary controls are relaxed.

Most of these costs are straightforward, but allocative inefficiency requires some explanation: Because Q_D is greater than Q_S in the second figure, there is a shortage of the product, and sellers must figure out how to allocate a limited supply. Perhaps they sell only to longtime customers or customers who also buy other products, or they just limit the quantity that each customer can buy. Rent control forces landlords to keep renting to existing tenants at artificially low prices. Such “non-price rationing” is inefficient because some buyers who don’t get the good would be willing to pay more for them. Producers would be willing to increase production and sell to consumers who want to buy at a higher price, but price controls make that illegal.

How Do People and Firms Evade Wage and Price Controls?

When a price ceiling prohibits a desired transaction, the buyer and seller will often evade the price ceiling by transacting in a closely related but unregulated product or by trading illegally in black markets. Similarly, sellers might change a good slightly to prevent it from being subject to the same price limit. The economist Hugh Rockoff notes that the price of clothing has been particularly difficult to control because an article of clothing can be upgraded easily to a higher-priced category by adding inexpensive decoration or reduced in quality by substituting cheaper materials.

The historian Jennifer Klein has documented that the current dependence of the U.S. health care system on employer-provided insurance is a relic of the evasion of wage controls during World War II. During that conflict, defense industries wanted to hire more workers but could not legally raise wages. To make their jobs more attractive, some employers began offering health insurance as a legal fringe benefit.

Price controls prompt greater behavioral changes in the long run. Consider how firms might respond to a higher minimum wage that increases the cost of entry-level labor. In the short run, employers might raise prices and economize on labor. Firms will tend to raise prices, even in a competitive market, because producers must pay higher wages to their employees. People will consume less of the higher-priced products that use entry-level labor intensively. In the longer run, employers will install more capable machines, such as dishwashers or automated cooking machines, to reduce the quantity of entry-level labor they use.

What Do Economists Think about Price Controls?

Economists generally oppose most price controls, believing that they produce costly shortages and gluts. The Chicago Booth School regularly
surveys prominent economists on questions of interest, including price controls. Most economists do not believe that 1970s-style price controls could successfully limit U.S. inflation over a 12-month horizon, and many of those economists cite high costs of controls.

Economists do know, however, that price controls can be theoretically beneficial when imposed appropriately on a monopolist or monopsonist, and they do tend to work better in imperfectly competitive markets. The economist Hugh Rockoff cautiously suggests a limited role for price controls during some inflation episodes in his book Drastic Measures: A History of Wage and Price Controls in the United States. Rockhoff reported that even the late Milton Friedman, a noted free-market advocate, accepted a limited role for temporary price controls in breaking inflation expectations during a disinflation.

Conclusion

Price controls have had a very long but not very successful history. Although economists accept that there are certain limited circumstances in which price controls can improve outcomes, economic theory and analysis of history show that broad price controls would be costly and of limited effectiveness. Appropriate fiscal and monetary policies can reduce inflation without the costs imposed by price controls.

References

• Klein, Jennifer. For All These Rights: Business, Labor, and the Shaping of America’s Public-Private Welfare State. Princeton University Press, 2010.
• Rockoff, Hugh. “The Response of the Giant Corporations to Wage and Price Controls in World War II.” The Journal of Economic History, March 1981, Vol. 41, pp.123-128.
• Rockoff, Hugh. Drastic Measures: A History of Wage and Price Controls in the United States. Cambridge University Press, 2004.
• Schuettinger, Robert; and Butler, Eamonn. Forty Centuries of Wage and Price Controls: How Not to Fight Inflation. The Heritage Foundation, 1979.

Endnotes

1. See Isabella Weber’s Dec. 29 opinion piece in the Guardian and Eric Levitz’s Jan. 2 article in New York Magazine.
2. The book Forty Centuries of Wage and Price Controls: How Not to Fight Inflation, written by the economists Robert Schuettinger and Eamonn Butler, discusses the historical examples in this article and is highly critical of price controls.
3. In command economies, such as the former Soviet Union, consumers must commonly spend hours standing in line to buy scarce goods and services.
4. A monopolist is the sole seller of some product, while a monopsonist is the sole buyer of some product. Monopolists will generally sell less output than would be sold by many competitive firms and for a greater price. If the government caps the price at which a monopolist may sell, it will sell a greater quantity at the lower price. Similarly, if a monopsonist is forced to buy for a higher price, it will do so and buy a greater quantity. Some economists argue for a minimum wage on the basis that the employment market is imperfectly competitive so the minimum wage can potentially increase both wages and employment. Other policies, such as subsidies and taxes, can also be used to make imperfectly competitive markets behave more like competitive markets.

What’s Not Included in GDP?

There are several transactions that take place every day but aren’t calculated in GDP, including:

• Sales of goods produced outside the U.S.
• Sales of intermediate goods used to produce other final goods
• Sales of used goods
• Purely financial transactions, such as buying stocks and bonds
• Transfer payments, such as Social Security, Medicare and unemployment insurance
• Volunteer services, and the value of services that stay-at-home parents provide to children

Why GDP Matters

Policymakers, government officials, businesses, economists and the public alike rely on GDP and related statistics to help assess the economy’s well-being and to make informed decisions.

Policymakers will look to GDP when contemplating decisions on interest rates, tax and trade policies.

The pace at which our economy is growing affects business conditions and investment decisions, as well as whether workers can find jobs.

State and local governments rely on GDP and similar statistics to help shape policy or decide how much public spending is affordable.

Economists study GDP and related statistics to help inform their research.

For more details, you can read the BEA’s primer on GDP (PDF).

¹ Editor’s note: When using real—or inflation adjusted—series, as shown in the chart, the components may not add up perfectly to the level of GDP. The difference is known as the GDP residual.

At the St. Louis Fed, new chapters are being written in our story every day by employees in every division, department and unit. Our We Are Central profile series introduces you to people who help make the Bank central to the nation’s economy.

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Just a few months into her job as the vice president of Diversity, Equity and Inclusion at the Federal Reserve Bank of St. Louis, Desiree Coleman-Fry has hit the ground running. I sat down with Coleman-Fry, who also serves as the St. Louis Fed’s Office of Minority and Women Inclusion (OMWI) officer, to learn about her background, why it’s important for the St. Louis Fed to focus on diversity, equity and inclusion, and why she believes each employee can help set the right tone as a “culture keeper.”

Could you tell us about your career journey prior to joining the St. Louis Fed last fall?

Advancing equity and empowering women have been key themes of my career. I started my career in Washington, D.C., in a management training program with local government. During my years there, I did constituent outreach for the mayor, implemented a federal grant and collaborated with nonprofit organizations to support under-resourced communities. It was deeply meaningful work.

Then, I moved back to St. Louis and took a job at United Way, which allowed me to connect with stakeholders across business, industry and community groups in St. Louis.

That led to an opportunity at Wells Fargo Advisors to lead the Missouri Community Relations and grantmaking function. My most recent role was with Wells Fargo Bank as senior vice president of Diverse Customer Segments. I was responsible for building an enterprise-wide, cross line-of-business framework that prioritized the financial needs of Black, Asian and Hispanic/Latino affluent customers.

Why is diversity, equity and inclusion essential for the St. Louis Fed to focus on?

Consistent with our vision of challenging prevailing views to drive change, it’s important that every leader understands that diversity, equity and inclusion are the responsibility of all of us in the Eighth Federal Reserve District. While there is a moral imperative that compels us to consider how we can foster empathy, understanding and belonging for every employee, there is also a business imperative.

The ability to lead diverse teams that represent a plethora of viewpoints, experiences and ideals is the new normal and is a foundational 21st century leadership skill. The multiethnic, intergenerational teams that the next decade will bring will require all employees to possess the skills to lead inclusively.

For example, the Pew Research Center reported in 2018 that millennials (those born from 1981-1996) are the most represented group in the workforce. With 35% of American workers being millennials, a leader’s approach must evolve to include the unique perspectives of the generation.

Likewise, the U.S. Census Bureau has projected (PDF) that, by the year 2045, the U.S. will be majority diverse. This will require leaders to hone their ability to engage and inspire teams with a wide range of life experiences. Thus, DEI is a strategic imperative because, to remain a preferred employer, we must enhance our ability to recruit and retain diverse talent.

How would you answer a St. Louis Fed employee who asks, “What can I personally do to support this effort and make the Bank a more inclusive workplace?”

I believe that each employee in the Eighth District is a “culture keeper,” so, ultimately, we all set the tone. One way St. Louis Fed employees can foster an inclusive workplace is to speak up when they notice that someone was not invited to a meeting or when a key stakeholder’s voice is not being heard in a group discussion. That may look like saying, “I would really love to hear what ‘Kim’ has to say. Kim, would you please share your thoughts.”

Employees can foster inclusion by educating themselves on the experiences of various communities from a race, gender, class, disability, gender expression or sexual orientation perspective. This may include consuming books, podcasts, articles, TED talks, etc. to learn and understand more. The culture at the St. Louis Fed is ultimately the responsibility of us all, so let’s use our voice and our relationships to foster positive change.

Finally, we’d love to know a little about you personally. Where did you grow up? Tell us about your family, hobbies and interests outside of work.

In my book, family comes first, so I’ll start by sharing that I have four children and an amazing husband. I’m from St. Louis. I attended the University of Missouri-Columbia for undergrad, so I root for the Mizzou Tigers during football season. However, during basketball season I root for Syracuse University, where I went to graduate school.

Personally, I’m passionate about helping others, and I serve on the boards of directors of the Danforth Plant Science Center and Loyola Academy. I love to read (I’m usually rotating one uplifting book and one social justice-focused book), and consuming books on Audible is my favorite. Finally, my faith community is multiethnic, multiracial and intergenerational, and I find it to be a grounding and empowering force in my life.

Note

1. The St. Louis Fed serves the Eighth Federal Reserve District, which includes all of Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

With sustainability a key imperative in the real estate sector, Arvana Singh, Head of Sustainable Finance Solutions at Nedbank CIB, shared her views during a panel discussion at the 2022 SA REIT Conference.

Watch the full panel discussion below:

You may also be interested in: 2022 SA REIT Conference panel: The path to the next normal

Gary Garrett, Managing Executive of Property Finance at Nedbank CIB, joined fellow industry leaders at the 2022 SA REIT Conference to share insight into this critical segment of the economy.

Watch the full panel discussion below:

You may also be interested in: 2022 SA REIT Conference panel: ESG – Investment decisions and value creation

Homeownership has long been considered part of the American dream. The conventional wisdom is that owning is better than renting, mainly because of the concept of building home equity through ownership. As a homeowner, there may be times when you question the advantages of ownership as you calculate the annual amounts you spend on property taxes, home repairs, homeowners’ insurance, and mortgage payments.

Despite the additional expenses a home can bring, homeownership offers many benefits. As the years pass, your home builds equity that can help you fund special projects and protect you against unexpected life events. Since 1891, Union Bank has been helping our neighbors in Vermont and New Hampshire tap into their home equity and get the most out of homeownership. This article will further explain the concept of home equity and show you how a home equity line of credit (HELOC) can work for you.

What is Home Equity?

Home equity is the increase in your home’s value over time, relative to the balance of your mortgage. If you owe $100,000 on your mortgage and the appraised value of your house is $225,000, you have accrued $125,000 in home equity ($225,000 – $100,000). If you decide to sell your home, you will reap this profit at the time of sale. If you’re not ready to sell, you can still benefit from your increased home value with a home equity loan or home equity line of credit (HELOC). If you’re unsure of your home’s value, the lending team at Union Bank can help you determine the current amount of equity in your home.

When can you begin to tap into your home’s equity?

Remember the day that you purchased your home? Your down payment helped you immediately own a percentage of your home, while the remaining portion was financed by the bank. Typically, in order to benefit from a home equity line of credit, you have to own at least 20 percent of your home. Paying off the principal, and not just interest, with your monthly mortgage payment helps you build equity. Once you own more than 20 percent of your home, you can apply to borrow up to 80 percent of your home’s equity. For example: If your home is valued at $200,000, 80% of the value is $160,000. If your first mortgage balance is $150,000, you could possibly qualify for a $10,000 loan.

What is a HELOC?

A HELOC is a secured loan in which your home equity acts as collateral. You are approved for a maximum loan amount and write checks against the loan as you need them. The typical loan duration is 10 years, during which you pay interest on the amounts you borrow. After your borrowing period ends, your repayment period begins. During your repayment period, you can expect to pay back principal and interest until the loan is paid off. A typical repayment period is 10 years. These time frames vary from bank to bank, but the concepts of borrowing and repaying remain the same.

How is a HELOC different from a credit card or other personal loans?

A home equity loan is a lump-sum loan, but a HELOC acts more like a credit card. With a home equity loan, you receive the entire loan amount and start paying interest on the full amount immediately. If you need additional funds, you must complete the application process again for a new loan.

A HELOC allows you to apply once in order to have access to a large amount of funds over time. With a HELOC, interest only accrues on the amount you borrow. For example, you could be approved for a $100,000 HELOC and immediately borrow $8,000 on a new HVAC system. Interest payments on the $8,000 would begin, and you would retain access to the remaining $92,000 to use as needed.

With a credit card, you are often limited to a smaller loan amount than a HELOC. Because credit cards are unsecured debt, you pay a much higher interest rate than a secured home equity line of credit. Interest on credit cards is not tax-deductible, but HELOC interest can be deducted from your taxes in certain situations. According to the IRS, tax-deductible loan interest is typically available for funds that are used to “buy, build, or substantially improve your home.”

How can I use a HELOC?

If you’re wondering why you should open a HELOC, there are many different reasons. If you wish to reap the tax benefits of a home equity loan, you’ll want to use the funds for home improvement projects. Consult your tax professional before deciding how you will spend your HELOC.

Purchases made from a HELOC don’t have to be house-related. You can use your home equity line of credit to fund any personal need. Because HELOCs offer a lower interest rate than credit cards, many borrowers tap into their home equity to fund the following situations:

• Consolidate credit card debt
• Pay for a wedding
• Afford a child’s college tuition
• Start a new business
• Fund a dream vacation
• Make a down payment on a second home
• Renovate a kitchen or bathroom
• Purchase new appliances

Because funds in a HELOC remain available for many years, they can serve as an emergency fund for your family. Unexpected medical bills, car repairs, or household maintenance can be paid for with funds from your HELOC. Since you don’t accrue interest until you spend the money, your home equity line of credit is a great safety net, should unexpected costs arise.

Union Bank has the right HELOC for you

As a true community bank, Union Bank approaches home equity lending with the same core values we bring to all of our services. Personalized attention allows us to get to know your current situation and financial goals. Attentive customer service means someone is always available to answer your questions. And we offer all of the same online banking and other convenience services as the bigger banks.

If you’d like to know more about home equity loans and HELOCs, stop by any of our 18 branch offices in northern Vermont and northern New Hampshire. Our team can help you find the perfect home equity loan for your situation. If you’re ready to use your home equity to invest in home renovations or pay down credit card debt, our online mortgage application is easy to navigate and can help you get started. For the best HELOCs in Vermont and New Hampshire, contact Union Bank today.