Raphael Bostic on Life as a Regional Fed President, the Responsibilities of a Dual Mandate, and the Results of the 2025 Framework Review

Raphael Bostic is the president and chief executive officer of the Federal Reserve Bank of Atlanta. In President Bostic’s first appearance on the show, he discusses his love of birding, what that teaches him about central banking, the unique role of the Federal Reserve Bank of Atlanta, switching for FIT to FAIT back to FIT, what to do about inflation, the importance of globalization, rising fiscal pressures, and much more.  

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Read the full episode transcript:

This episode was recorded on September 23rd, 2025

Note: While transcripts are lightly edited, they are not rigorously proofed for accuracy. If you notice an error, please reach out to [email protected]. 

David Beckworth: Welcome to Macro Musings, where each week we pull back the curtain and take a closer look at the most important macroeconomic issues of the past, present, and future. I am your host, David Beckworth, a senior research fellow at the Mercatus Center at George Mason University. I’m glad you decided to join us.

Welcome, everyone, to a very special edition of Macro Musings, the podcast. We are coming to you live from the Atlanta Federal Reserve Bank with its president, Raphael Bostic. Raphael, thank you for joining us.

Raphael Bostic: Thank you for coming down to spend some time with me.

Beckworth: Oh, it’s great to be here in the building live. This will come out in a few weeks for the other listeners. Last time we were together, it was in May at your wonderful Financial Markets Conference. You invited me to participate to moderate a panel, but I love the conference because it dealt with the plumbing of the financial system. We talked about private credit growth. You had panels on the Treasury market, the operating system of the central bank. I moderated that one. You had a fascinating conversation with the vice chair of the Federal Reserve about the liquidity facility.

A lot of fantastic conversations on stage as well as in the hallways, dinner time. Even you and I got a few chances to chat. We would start off on monetary policy. I think we talked two times, but we ended up talking about birding. We start with technical monetary policy issues and end up with birding. I learned you’re an avid birder. Tell us about that. When did you start, and how did you get into it?

Birding

Bostic: Well, first of all, thank you for doing that at the conference. You helped make it a very successful thing.

Beckworth: Well, thank you for inviting me.

Bostic: I got into birding a long time ago. I don’t call out numbers anymore, because I’m an old person. We just want to let that be but it really happened by accident. My husband and I were hiking in some national parks. I was a fast hiker. He was enjoy-the-journey type of hiker. I just started noticing these things out bouncing around in the trees, and I didn’t know what they were. Then his sister got us a guidebook and a bird feeder. Once I realized I could actually figure out what each one of these things was, that was it. It really exploded into something that I really enjoy to do.

For me, it does two things. One, it keeps me balanced and connected to the planet. Two, to do it well, you really have to be focused in the moment. It’s an escape from the work, because I’m not a good sort of vacation, just lay-on-the-beach [type]. My mind will just keep working, and so to see birds and to notice them, and if you have to, really just shut everything else off. When I’m doing that, I feel very away from work. It’s very recharging.

Beckworth: Good therapy for the soul, escape from the 24/7 central banking job that you have. At the conference, you were awesome because you showed me how to be a birder. You showed me all the apps: Merlin, eBird, even Audubon. I went home, showed my wife. We’ve been doing some birding. Nowhere near your level, but just to know the level of seriousness that you’ve been doing. You’ve been doing it for several decades. You do bird trips, I understand. I have to ask you a few other technical bird questions. Have you ever made it to a fallout? Maybe explain what a fallout is?

Bostic: I’ve never seen a fallout. Fallouts happen during migration. All the birds are flying from South America, Central America up to here. There’ll be situations where the winds are really hard. When the birds, the first piece of land they see, they all just fall down, and they’re exhausted.

If you happen to be there, you will see an amazing collection of all manner of birds. I’ve never seen one. They’re famous. They happen a lot on the Gulf Coast. That’s one of the first places. Then also you’ll get it up, like Magee Marsh in the Ohio area. They might fly from here, like Kennesaw Mountain or something, trying to get up to Canada. If the winds aren’t so favorable, once they get to Lake Erie and those places, they fall. You can just see amazing things.

Beckworth: Now, have you had a “big year”?

Bostic: No. A big year is—it’s funny, I actually just watched a YouTube podcast on a big year.

Beckworth: A big year, yes.

Bostic: It was actually very interesting. A big year is where someone decides for one year, I’m going to try to see as many birds as I can, and it’s  a calendar year. I don’t think the folks here would be happy about me doing a big year at this point, but it takes a lot of planning. You spend a lot of time in marshes and things with a bunch of mosquitoes and all that. I’m not sure I’m really up for it. I’ll enjoy every now and then, do a trip. Just hope there’s some odd things around and enjoy it.

Beckworth: I watched the movie The Big Year. That was a lot of fun part of my journey, becoming a birder, talking to you. I understand now is a great time to be watching birds. The migration is happening, so if you get out there, you’ll see something.

Bostic: That’s exactly what I see, the other migration. After the birds come up here, they do all their breeding, they nest, all that kind of stuff. Now it’s time to get out of here for the winter. This is about the time when, if you’re out, you can start to see a lot of unusual things. There are actually some software packages online where they will monitor because these bird flights, their volumes are so large, they can show up on weather cameras.

Beckworth: Oh, wow.

Bostic: You can anticipate when they’re coming and get out there. There are a couple that will tell you your area is going to see the high night for the birds to come down. Get up in the morning and go out and look for things.

Beckworth: We could talk the whole time about birding, but go ahead.

Bostic: I have one question for you. How is it going?

Beckworth: Oh, it’s great. I made a few list of birds that I saw: the indigo bunting, a summer tanager.

Bostic: Oh, nice.

Beckworth: Then the usual yard birds. I have the feeders and stuff, but we’re still learning and growing, and we aspire to be like President Bostic in birding prowess and ability.

Birding’s Connection to Central Banking

Let’s talk about central bankers. You already did, but make the case. Why should more central bankers take up birding?

Bostic: For me, I think it gets you in touch with the flows of the planet. There are natural flows, and then there are human flows. Part of what I’ve found to be really interesting in this job has been how much I can learn just by going places and paying attention, being very focused on the local spaces, listening carefully to what they’re saying and how they’re feeling. I feel like I have a better sense of the pulse of my district and by extension the country’s economy because I am trying very much to—you come informed with information, but don’t just let your lens be the thing that governs. It’s really how everything fits together in really interesting ways.

Beckworth: I ask AI this question, and I want you to rate it. I got, I think, three here. I want you to rate how realistic is this: Why more central bankers should take up birding and be like you? Number one answer is better pattern recognition. Or long-term perspective with immediate alertness. It said, “birders develop patience for seasonal cycles and migration patterns, while maintaining acute awareness of moment-to-moment changes. This dual temporal focus perfectly matches central banking, where you must understand long-term economic cycles for responding quickly to market developments.” That reasonable?

Bostic: That’s brilliant. I’m going to use that one, actually.

Beckworth: Okay. Thumbs up. Second point: “Data integration under uncertainty. Successful birding requires synthesizing incomplete information, weather patterns, habitat conditions, seasonal timing, brief glimpses to make confident identifications. Central bankers face similar challenges making policy decisions with partial economic data and uncertain forecasts.”

Bostic: AI’s pretty good. We were just talking about the fallouts. A lot of that is paying attention to the patterns and knowing the timing and all that kind of stuff. Using data to your advantage.

Beckworth: We’re making a strong case.

Bostic: Two for two exactly.

Beckworth: Last one. “It develops humility and continuous learning,” which I think you’ve alluded to this. “Even expert birders regularly misidentify species and learn new things. This humility and growth mindset would serve monetary policymakers well in an inherently uncertain field where overconfidence can be economically costly.”

Bostic: That’s exactly right. You’re out, when I’m out, oftentimes, “Oh, there’s a bird, and it’ll be a log or a leaf or a whatever.” It is one of these things that’s continuously humbling but that makes it rich. There’s always some learning that happens, and there’s always discovery. That’s a wonderful thing.

Beckworth: All right. We look forward to more central bankers taking up birding.

Bostic: You too. It doesn’t just have to be central bankers.

Beckworth: Fair enough.

Bostic: Anybody can do it.

Atlanta Fed

Beckworth: That’s right. Let’s move into probably most people are here to listen to. Let’s talk about the Fed, and eventually, we will get to the market folks, for those who are listening. Let’s talk about the Atlanta Fed. This is a unique central bank. Tell me what makes it unique among the other regional banks.

Bostic: There are a couple things. First, we’re the sixth district that covers the whole state of Florida, whole state of Georgia, the whole state of Alabama, the bottom half of Mississippi, the bottom half of Louisiana, and the eastern two-thirds of Tennessee. It’s a large district. It’s about one-sixth of the US economy. It’s extremely diverse. It goes from Appalachia, a lot of rural areas in the middle. It has Miami, Nashville, New Orleans. It has a lot in addition to Atlanta. Economic activity is actually quite interesting in that it almost perfectly mirrors the US economy.

By understanding the sixth district, it’s a microcosm for the US. Getting that pulse and many other districts, they’ll have specialties, like they’ll have energy or technology, or those specialties. I feel like our opportunities are strong there. Then we do a bunch of special services on behalf of the system historically. We have historically been a key leader in driving the payment system services that are done by the Federal Reserve, things like check clearing and processing, for those of you who still write checks. ACH, automated clearinghouse, government payments—Medicare, Social Security, those sorts of things go over Federal Reserve hardware. Of course, there’s cash. There’s a lot of stuff that we do, and we’ve historically had a leadership role in that, and we continue to play an important factor there.

Then, in monetary policy, we have a few distinctive characteristics that I think are also quite helpful for me in terms of trying to figure out how the economy works. One, we have a survey center that runs a series of surveys, like the Survey of Business Uncertainty, the Survey of Business Inflation Expectations. We do a survey of CFOs, and we do a whole host of other things to try to get real-time information.

But we also have a group of people that we call the Regional Economic Information Network or the REIN team. Their job is to just go talk to people in unstructured ways for an hour and a half or two hours and ask these leaders, “How’s your business going? How are things happening for your employment, your workforce? Are you able to retain people? What are the things that are stressing you out? How is your costs happening? What do you think is going to happen with prices moving forward?” We bring all of that.

I actually have the US-produced data from the federal government. I have the information that we get from surveys and the information from REIN. Those are three distinct sources. Those last two are actually useful, and we’ve built them up because during the Great Financial Crisis, we missed it. That was a type of event that somebody out in the real world had to know there were risks building up. We just didn’t have conduits to get that information. We built up those other two vehicles to try to make sure that we’re always collecting a broader set of information, including forward-looking information to give us a sense of where the economy is likely to be six months from now, a year from now, or two years from now.

Beckworth: Your GDP Now measure is very popular, well known, probably the most popular real-time estimate of GDP. Then your wage tracker, that was really popular during the inflation surge, people looked at that every day.

Bostic: Yes. Our team is incredibly innovative, and our researchers they’re very good in doing their research. They also have really taken a commitment to trying to be accessible to everybody. Our GDP Now is not a hard tool to use. You can get on there, you understand it, the wage tracker. I get a lot of comments about how splitting between job stayers and job switchers has been quite informative. We actually, a couple of years ago, put out an underlying inflation dashboard. Because at the time, right before the pandemic, and you remember, the PCE number was really different than a lot of the other measures, and it was creating a lot of conversation.

We tried to be fully transparent and give people a sense of what’s going on. The two other ones that are very popular are our homeownership affordability monitor. We also have just a general housing affordability monitor for renters as well, and given all the challenges in affordable housing, that’s been another one that gets picked up pretty regularly.

Beckworth: I’ll mention for those who like to nerd out on monetary policy, you have a nice Taylor rule page.

Bostic: Yes, we do.

Beckworth: You can tweak the rules and see what the different rules would prescribe. Now I want to quickly go back to your cash operations because I’ve been doing some readings, some research, had some guests on the podcast talking about the net income loss on the Fed’s balance sheet. Lo and behold, if you look just at the Atlanta Fed, you guys are actually making money. You have positive net income, and I understand largely due to your cash operations.

Bostic: It is. I don’t talk a lot about those things. That is much more of a passive reality where monetary policy drives activity, but it is a testament to the important role that we play. In particular, we are in the process of transitioning to a new vault in Miami, because the demand for product or for cash down there is significant. We want to make sure that we have all the public requires, but also it’s going to serve as a safety net, because what we’ve learned is that when there are big storms and things that happen, the demand for cash spikes. We want to have a repository that’s close to all the banks in Florida and the Gulf Coast, so we can get them the resources they need so that once the storm is done, we don’t have runs on the bank and a bunch of frustrated angry people who are feeling really stressed out. We really want to get out ahead of that so that people can focus on just living as opposed to do I have the resources that I need to do the living.

Beckworth: If power goes out because of a hurricane, we all use digital money. Cash becomes really important really quickly.

Bostic: Extremely quickly. Exactly.

Fed Framework Revisions

Beckworth: Well, let’s transition into something that I’ve followed closely. In fact, at the conference, I found you initially to hit you up on nominal GDP targeting. In fact, we have some nominal GDP targeting mugs here. Everyone of this podcast knows I’m a big champion of it, but the new consensus statement came out at the Jackson Hole meeting. Tell me your understanding, your thinking about it, how you went from FAIT to what we have now.

Bostic: What I thought with the framework revisions, there were a couple things that were very important to me. One, I thought that it would be very important that the statement be relevant in a wide range of economic circumstances. When the previous statement was written, we were going through I think a long period where I think many believed that we weren’t going to see a lot of variety, and we would be near the zero effective lower bound for the foreseeable future. That reality didn’t turn out to happen.

I think this resetting to get us back to a more generalist statement is actually quite important. The second thing that I thought would be important is really to talk about how we think about inflation and the things that are important for it. We lift up inflation expectations as something that we definitely want to pay attention to. I think that was an important thing for people to understand, and give them a sense of what we’re going to be paying attention to moving forward.

A third thing was really, when I talk about our mandates, I talk about stable prices and maximum employment, but I often say sustainable maximum employment. Because we know that if people go in and out of employment, that is usually more detrimental than you would think. We have some researchers here who have done some work on that last in, first out dynamic that really inhibits planning on the part of families, and increases their struggles. Adding the notion of sustainability in which we want to have a robust economy that isn’t so volatile, that people lose faith in it. That was the third thing that I thought was actually quite important.

In terms of the inflation goals and discussion for target, I actually would be open to using a range. I’ve said this in many settings, but you can only do so many changes. It is a committee of 19 people. You have to pick your spots, and sometimes there’s this illusion of precision that we can move inflation into the third decimal place and that kind of stuff. I don’t really think that’s real, and sometimes that can cause people to, I think, focus on the wrong things. There are some big picture things that matter.

In today’s environment, it’s interesting. We’re at 2.4, 2.6, 2.8, somewhere in that range. People are asking like, is that 2? For me, I think no. My range would be narrower, but it’s a good conversation to have about what are we trying to accomplish and how should things go.

Beckworth: If you could start from scratch, what would your range be?

Bostic: That’s a very good question. It may be two and a quarter, or one three-quarter or something like that. 

Beckworth: Fairly narrow. It wouldn’t be one to three or?

Bostic: No, that would be—

Beckworth: Too much wiggle.

Bostic: Well, I think one of the things I worry about is momentum.

Beckworth: Oh, right.

Bostic: If you’re a one and a half and then you saw it move to 2.8, the likelihood is going to stop at 2.8 is limited.

Beckworth: That’s a good point.

Bostic: I’d like the range to be such that—now this is of course me. Like I’m not making policy today, but that movements in the range wouldn’t be likely to create a momentum that could then get you far away from where you ultimately wanted to go.

Beckworth: You get away from the illusion of precision, but don’t make it so large that you could create danger down the road. Now, I want to go back to these points that you raised. In the statement, it says the committee is prepared to use its full range of tools, and then it goes on particularly if the federal funds rate is constrained by the effective lower bound. It’s still guarding it, hedging your bet, so to speak, in case that does come back.

Then later, I think you alluded to this earlier, you said the committee will act forcefully to ensure longer-term inflation expectations remain well anchored. Between the full range of tools is firm, I think firmer commitment in this statement than previous ones to stable inflation expectations. Does that suggest that, should we go to a weak demand world, lower bound that something like FAIT might be resurrected? You might do make up policy again.

Bostic: I don’t think so. I view this a couple of ways. One, I think, in my view, our interest rate policy, that tool is the primary tool. We’ll think about the other tools if we’re in situations where that tool is not going to be able to deliver the ways that we need it to. Those moments, I think, will be fully transparent to everyone. I think everyone gets that.

My hope is that if we have that commitment and then people don’t think that we’ll waiver in that commitment, then we won’t need makeup policies. We’ll be able to just get to where we need to get to, and people won’t have the illusion that we’ve given up on the notion of hitting a number over a longer range. It’s like, “Okay, we had a rough patch. We’re not going to hold the economy liable for that.” Then once we get out of the rough patch, we’re going to get to where we need to get to and just stay there. Hopefully, these committees think a lot about the communications, and if there are ways to communicate, during the rough patch to make clear we haven’t really forgotten what we’re doing. The experience that I’ve seen so far is that the expectations usually stay pretty stable. That would be the goal moving forward.

Beckworth: Stick with the flexible inflation target. Most circumstances push comes to shove, you break the glass and you pull out the other tools, just in case. They’re there in the background if needed.

Bostic: Yes. The thing that was interesting is during the pandemic, we set up a bunch of facilities for fear of liquidity breaking down. Many of them weren’t used, but when we talked to businesses, they said, “Does their existence and their presence give us some comfort that we didn’t feel like we had to flip into emergency mode? We could keep trying the things that we’ve known and doing the things that we’ve known.” I think there’s some spirit of this, a signaling that we’re not just going to exit stage left. That if something happens, we will be responsive and as forcefully as possible. This chair has, in the time I’ve been here, have been quite forceful, and he’s had a view that it was time to respond to an emergency. We responded with a lot of strong direction.

Beckworth: I have used this summary of the change. I want you to tell me whether it’s fair or not. Flexible inflation targeting is FIT. Flexible average inflation targeting is FAIT. I said, we’ve gone from FIT to FAIT to FIT, back to FIT. Is that too simple, or does that capture the spirit?

Bostic: No, that’s fair. That’s fair. One of the things that’s very challenging is that we rolled out that previous framework right in the midst of the pandemic. The world changed dramatically, and it took the economy to a place where a lot of that relative overtime stuff became less salient because the changes were just so dramatic. I’m not sure that we ever really had an opportunity to do the FAIT because we were responding to crisis. If we hadn’t revised it, I think now we’d be starting to talk about what would the mechanisms of a FAIT look like as we move over time. History was what it was.

Beckworth: Effectively, FAIT didn’t last very long. A little over a year.

Bostic: It was its fate. Exactly right.

Beckworth: The fate of FAIT is fatal. Before we move on from the framework, again, we’re sitting here with nominal GDP targeting mugs. I pitched to you, I pitched to almost every Fed official I could. Did it get at least some airtime? Did it get any conversation, like nominal income targeting, nominal GDP targeting, and then you moved on to something else?

Bostic: Look, in our briefing memos leading up to it, there were lots of alternative approaches, so it was there. I actually think this next period will be a period where there’s more thought about this, more robustly, so we just have a new governor, Steve Miran. I think a couple of days ago, he talked about using some alternative measures, national income and national savings rates, and those sorts of things, which are very along the line of this. I’m expecting that over the next several years, there’s going to be a very robust discussion around these things, and I’m guessing you’ll get pulled into some of this.

Inflation

Beckworth: Okay. Just wait and see. All right. Well, let’s move to current monetary policy issues, so inflation seems stubbornly sticky, and as you mentioned, inching up a little bit. It hasn’t completely come down to 2%, and the median SEP from the last FOMC says we don’t get to close to 2% until 2027. Now that’s just the median, and that’s a conditional forecast. We’ve got to qualify all that, so it could change. Should we be worried about this development, and what should the Fed be doing about it?

Bostic: Well, it is one of our mandate dimensions. I think, not having been a target for over four and a half years, we definitely need to be concerned about it. One of the things that our team has really been trying to do is get a sense of what the trajectory of inflation is likely to be over the next six to 12 months. Now, there’s been a lot of discussion and debate about whether one would expect that tariffs would have an impact on inflation initially, and to date, it’s been much more muted, I think, than many expected.

Then there is the additional question of will things like tariffs be one-time shifts, or will they lead to some structural changes that might mean that we have a different dynamic for inflation? All of those things are in play in ways that I think are quite significant, and from our surveys, business leaders are telling us they are definitely feeling the cost pressures, and it is becoming increasingly difficult to prevent those from flowing into prices that are faced by consumers and by their customers.

I actually think there’s still more to come. The other question will be, does that translate into structural things? Now, there are some other reasons why you might think it won’t, so you think about technology. We were doing AI earlier to the extent that that increases productivity of workers, that will reduce the upward pressure on wages and actually can offset some of them in that input cost pressure. But we’ll just have to see what it looks like. I’m still worried about it, and as I mentioned with my range, I don’t think we’re at target today, and given that the forces and the pressures are likely to move us away from that in the short and medium term, I really think we need to pay very close attention to the consumer psyche, and to what businesses plan based on what they’re expecting the future to have.

Beckworth: Back in 2019, was a very similar story, maybe less pronounced. The president was pushing hard for tariffs. There’s similar rhetoric about the Fed from the presidents, but today, I think it is fundamentally different in the sense that with the scale, I think of tariffs is different as well. We’ve been through the pandemic, and if you look at surveys, and I know you know this, people still are worried about inflation.

In 2019, it’s one thing to look through, which I would say that’s the right prescription, look through supply shock inflation. If people are price sensitive, you look at least consumer surveys, I’ve looked at Google trend searches, it spikes and then it comes down. It sits at a higher plateau. Is there a concern that this won’t just be a one-time price level shock; it will translate into a higher trend inflation because people are once bitten, twice shy about inflation?

Bostic: That is definitely a possible dynamic. From the very beginning, I’ve been worried that once people have an experience with high inflation, and they walk into a store worried about what price they’re going to see, those sorts of things are very difficult to just all of a sudden forget. As a psychology major, what I know is that people respond differently to upside surprises and downside surprises. For the same size surprise, the response is much stronger for a downside surprise.

The inflation, if you think about that as a downside surprise, you would expect that sensitivity to be much higher than you would otherwise, and it may linger for much longer. The longer that prices are high, the longer that that change is happening, it does run the potential of affecting the decisions and plans that people have made. Look, we’re hearing today that for many, particularly those with lower income, less wealth, and other challenges, they’re already feeling stressed with the price level. They’re making decisions to try to stretch their dollars. Rationing things like detergent or buying generic goods in stores as opposed to the brand labels. That’s happening now. If inflation starts to move further away and people see that price accelerate, that could lead to a very difficult response and potentially a retrenchment in the economy. I think it’s incumbent upon us to continue to stay vigilant on the fight against inflation.

Now, the other thing that we have is a dual mandate. There’s a second side, and this is different than what happens for many other central banks. With that dual mandate, we’ve started to see labor markets weaken as well. A lot of the debate that we’ve been having today has been like, “Which risk is bigger? Is it on the inflation side or is it on the employment side?” Different people have different views on this, and we’ll see how this evolves over the next several months.

Beckworth: On the labor market, some people would explain away the apparent weakness with, “Oh, it’s just less people immigrating. It’s immigration.” Others would say, “No, it’s a softening of demand.” Where do you land on that?

Bostic: It’s a little of both. The thing that I really think about is we’re seeing the labor markets are very difficult to interpret today because we do definitely see the population supply issue is very present. I’ve been hearing from our businesses for many months that we are seeing more cautionary buying, more cautionary behavior, so that the demand for product is actually shrinking a little bit. The overarching story that we’re hearing from businesses is, “I’m not going to hire anyone, but I’m not going to fire anyone either. There’s enough uncertainty in the economy that I don’t want to find myself shorthanded,” because people remember how hard it was to find quality workers during the pandemic.

That’s where we stand. Another reason why this is so complicated is this is just starting to happen now. The deployment of technology and AI is changing how businesses are thinking about their workforce. Some are viewing these new technologies as potentially labor-enhancing or complements. Others are potentially thinking of them as labor substitutes, so we won’t have to hire nearly as many. That also has an impact on demand, and that’s a structural thing on top of some of the cyclical.

Teasing all this out is a really, really hard thing. One thing that is definitely sure for me is the sentiment around the risks to employment have gone up a lot. They are, for many, comparable to the risks to inflation, and that is creating some tension in terms of what the right policy should be.

Beckworth: We have this dilemma where we have the two parts of the mandate going in different directions. Inflation is heating up, or at least staying warm, maybe.

Bostic: Potentially, right.

Beckworth: Yes, it’s not coming down. Then we have employment softening. If only there were a framework that could really handle both and make it easy, right? Oh, yes, nominal GDP targets.

Bostic: Oh, yes. I was going to say, I should have been holding the mug. 

Forecasted Long-Run Federal Funds Rate

Beckworth: Anyways, we’ll save that for the next five-year review a few years from now. I want to go to the SEP’s forecast for the long-run federal funds rate. It’s at 3%, take away the 2% inflation. The median FOMC member, sees the neutral real rate, or the r-star, at 1% over the long run. Does that strike you as reasonable, right, because before it was 0.5% for a long time. Now we’re at 1%. Do you think we’re stuck at 1%?

Bostic: I don’t know if we’re stuck at 1%. These star variables are always very difficult to tease out. I have in my head that we are starting to see it rise. I think 1% is in the ballpark. Right now, I’m maybe at 1.25%. I think we’re certainly far away from 0% or some of the negative things. It’s in part a lot of the changes that are happening in the world more broadly. I think I hear more concerns expressed about fiscal policy and sustainability in this country, but all over the place, and how is all of the debt going to be managed.

Those have implications for people’s views about what the long-run cost of money should be for them. That comes into conflict, in part, with some of the secular changes, the demographics and things that have been around for a long time. Some believe that we’re going to get back to that pattern. Others are not so sure anymore. It’s a very complicated thing.

I do think that the notion that we should expect r-star to be where it was when we were at zero is not right. I think this move up is a welcome thing. I also think, though, on SEPs, we are very focused on short run right now. We have a clear and present issue. I try to bring some of this into the conversation that we do in our building, but a lot of times they just tell me we can’t talk about that right now. Let’s get on with trying to figure out the things about inflation and employment.

Beckworth: Well, as you alluded to, there’s a short-run r-star and a long-run r-star, and maybe the short-run is higher. You can of three factors, and you alluded to them, demographics, that’s population slowing down. That would lower it. The fiscal pressures, risk premiums would push it up. And then AI. In that case, it would also probably push it up, but we’d be happy if we had higher r-star because we’re having rapid growth.

Bostic: Well, some people would be happy. It is actually quite interesting at a macro level. I think you’re exactly right on that. I think one of the challenges that I worry about is transitions for the workforce. Because if AI does increase this productivity in the ways that people are anticipating it will, that will mean that the type of work that’s available for people will shift in pretty significant ways, and it could shift in job categories that have not historically been subject to technological disruption. I worry that a lot of folks in those sectors aren’t ready.

I don’t know that we are ready to help people figure out these transitions. I’ve talked to a number of folks who said, “I don’t think we’re going to really need a coder two years from now. That AI can do all of that for us.” We have a lot of people who have oriented their lives to being active in this technology frontier, the boundary of which is moving away from them very quickly. I think it would be useful to have a conversation that focuses on what does transition look like. How do we collectively think about deploying really talented people to help us advance our economic prosperity?

Beckworth: That’s a great point. I’ve thought about AI in terms of fiscal issues and rapid growth. Your point is if we do get rapid, let’s say AGI growth, so let’s say 5%, just as a hypothetical, which should be really rapid. On one hand, we ought to be celebrating. Your point is yes, but to get that massive disruption in the short run, how do we deal with those, even though overall income is higher, certain sectors that will be hit hard.

Bostic: Well, this has been a historical thing. As we’ve opened the economy for trade, there has been more prosperity. If you look across this country, there are places that really have not enjoyed or benefited from that prosperity and have expressed a lot of frustration about it. I go to a lot of places now, and their overarching view is like, “We are falling further behind. We don’t have opportunities for our children, and we’d like to participate more in the economy. What should we do? How do we do that?” If we wind up with large-scale disruptions through technology and AI, there are going to be a whole lot more people that are going to need that conversation. We’re going to need to be equipped to have it.

Beckworth: Yes, because if not, further fuel for populism and other unpleasant developments. 

Bostic: Well, people will start to question whether the social contract that they signed up for is being honored. It’ll be a fair question. It’ll be up to all of us to make sure that we honor it. That’s where the focus needs to be.

Globalization

Beckworth: Going back to globalization, its effect—certain Midwest towns were hit hard, do you think part of the story is the shortage of housing, the decline in labor mobility? If someone’s in Michigan there’s great opportunities in Texas, but they can’t afford to move down there because the housing’s so expensive.

Bostic: There is some degree of constraint to mobility because of assets like housing. That’s real. I’ve been working on housing for a long time. It’s a very difficult area, because decision-making is so local. What we need is an aggregate strategy to make sure that there is housing at all price points in all places, but especially places that are growing fast. Because those are the places where you’re going to want people to feel like, I can just get there like tomorrow and not worry about am I going to be sleeping in my van. Like graduate students were in the Bay Area in the late ’90s, so that’s the thing that is challenging.

I also think, and this is still true less so now, there are information challenges so that that person in Michigan may not know about the nature of opportunities in Texas. Finding ways to improve our technological connections and ways for people to promote can also be quite helpful. We saw some improvements during the pandemic. Many jobs became national jobs in the national sectors, but I think we could probably even use a lot more of that.

Fiscal Pressures

Beckworth: All right. In the few minutes we have left, I want to touch on something you mentioned: fiscal pressures. I think we both agree that’s something that needs to be addressed by Congress, and it is a serious issue going forward. In the meantime, we’ve got to maintain the Treasury market. We got to keep it robust, resilient to the increased flow supply plus demand pressures on the Treasury market. I know at our conference you talked to the Vice Chair Jefferson about this. We had some panels on it.

What do you think about reforms like central clearing, making this repo facility more accessible? What thoughts do you see the Fed’s role and just in general reforms in that market?

Bostic: I think there are things like central clearing, which I think would just streamline a lot of the activity, and make it less likely that you would have technical bottlenecks that would arise. I think that would be a good thing. I think from the Federal Reserve what you’ve seen is us establishing a number of facilities and utilities so that we’re in the backstop, we’re available as a pressure valve that can really help make sure that functioning continues. That’s been a good thing.

One thing that’ll be interesting is, to what extent do vehicles like stablecoin create opportunities for more fluidity and more accessibility in these markets? I’ve heard people talk about the presence of a stablecoin perhaps allowing people from all over the world, like regular people, to be holders of Treasuries and ways that could really advance liquidity. Those innovations would be useful though. That’s outside of our purview right now, but I’m definitely looking at the full range of possibilities as we move forward.

Beckworth: The Standing Repo Facility is under your responsibility. I know there’s not a lot of uptake in it. It’s a relatively new facility. It helps sets the ceiling, but are there innovations reforms coming to that?

Bostic: We’ve been thinking a lot about timing, availability, trying to reach out to counterparties, and it was used a bit in this last couple of weeks as there were some tensions that some market participants were having just as a short-run valve, and it worked quite well. We’re going to continue to monitor that. I think some of the experience in the last 20 years, the concerns about just basic market functioning has made that something that I think will be a continuous consideration. We’ll have people always looking for ways to refine and tweak the tools that we have available.

Beckworth: Well, it’ll be interesting to see how this unfolds. Our guest today has been Raphael Bostic. Raphael, thank you so much for joining the Macro Musings podcast.

Bostic: Well, it’s been a great to be here. Hope that you’ve enjoyed the conversation, and I look forward to seeing you out on the birding trail sometime.

Beckworth: Absolutely.

Beckworth: Macro Musings is produced by the Mercatus Center at George Mason University. Dive deeper into our research at mercatus.org/monetarypolicy. You can subscribe to the show on Apple Podcasts, Spotify, or your favorite podcast app. If you like this podcast, please consider giving us a rating and leaving a review. This helps other thoughtful people like you find the show. Find me on Twitter @DavidBeckworth and follow the show @Macro_Musings.