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Fed Chief Says U.S. Economic Expansion Has Been Uneven

Federal Reserve Chairman Jerome Powell said, during a visit to Mississippi, that the economic expansion hasn’t been evenly shared in many parts of the country, particularly in rural America.

“Data at the national level show a strong economy” with historically low unemployment and output growing at a “solid” pace, Mr. Powell said in a speech at Mississippi Valley State University. He noted earlier Tuesday, during a question-and-answer session with students, that the Fed doesn’t think the risk of a recession “is at all elevated.”

Mr. Powell didn’t otherwise address the economic outlook or monetary policy in his speech, instead underscoring the need for policies to reduce inequality by improving access to education, entrepreneurship and banking services in regions with high concentrations of poverty.

“We know that prosperity has not been felt as much in some areas, including many rural places,” Mr. Powell said. “Many of these disparities have existed for generations and in some places have roots in a history of discrimination.”

The Mississippi Delta, home of blues legends like Robert Johnson and B.B. King, is one such region. Leflore County, where Mr. Powell spoke, has a 42% poverty rate, a $15,403 per capita annual income and 10% fewer residents than in 2010, according to the U.S. Census Bureau. Three-fourths of the population is black, and residents say the legacy of enforced segregation and racial discrimination lingers more than six decades after the lynching here of 14-year-old Emmett Till, an African-American boy from Chicago, helped catalyze the civil-rights movement.

Raising workforce participation in such areas, Mr. Powell said, could help lift broader economic growth and should be a priority for policy makers.

“We say we’re close to full employment at the national level, and we are, but there are pockets of regions and demographics all over the country who are not at maximum employment,” Mr. Powell said in response to a question after his speech. “So the obvious way to grow the size of the economy is to bring people into the economy who are at the edges.”

In his speech, Mr. Powell hinted at future challenges because many rural economies have relied heavily on one or two industries where employment is declining due to automation and outsourcing. He said access to high-quality education from preschool to college is critical to overcoming persistent poverty.

Mr. Powell also called attention to the challenges of providing access to safe and affordable banking services in poor rural communities, particularly those whose residents are predominantly members of minority groups. While black women, for example, represent one of the fastest-growing groups of entrepreneurs, Fed research shows members of minority groups have a harder time accessing credit to start or expand businesses, Mr. Powell said.

To that end, Mr. Powell said current discussions around revising implementation of the 1977 Community Reinvestment Act should consider ways of encouraging banks to seek opportunities in underserved areas. The CRA requires federally insured banks to take steps to lend to borrowers in low- and moderate-income areas.

“To the extent that banks serve much broader areas using online or other non-branch delivery systems, or have so many assessment areas that examiners cannot do a thorough evaluation in each, the financial needs of many rural communities may be overlooked,” Mr. Powell said.

The central banker admitted to having a limited toolbox for addressing the needs of underserved communities, adding that fiscal policy is both more powerful and more immediate than interest-rate policy.

In the earlier session, several students asked Mr. Powell what the Fed can do to help the area. He pointed to interest-rate policy aimed at achieving maximum employment and low inflation, as well as enforcement of the CRA and other banking regulations.

Asked by an attendee about the prevalence of predatory lending in the area, Mr. Powell explained that the Fed’s supervisory authority is limited to the banking sector. Regulation of nonbank lenders, he said, is the responsibility of the federal Consumer Financial Protection Bureau as well as state agencies.

Under the Trump administration, the CFPB has been easing its stance toward nonbank lenders. The agency last week announced plans to significantly roll back a rule imposing tough underwriting standards on payday lenders.

Some state attorneys general and legislatures in Democratic-controlled states are responding to the CFPB’s policy shifts by bringing enforcement actions and tightening state laws to rein in high-cost lenders.

Mr. Powell said the Fed also researches “what works and what doesn’t” and arranges meetings for local authorities, academics and business leaders to discuss potential initiatives.

“We think of a topic or an area and we get all of the relevant interested policies around a table and try to marshal private resources and public resources — not necessarily our resources — around problems to make things better for people in these underserved areas,” Mr. Powell said. “We also enforce laws against discrimination and in favor of making credit available.”
Source: Dow Jones

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