Inflation is on everybody’s nerves, whether you’re a South Florida homebuyer trying to find a new residence or a worker in need of higher wages to make ends meet.
It’s why Raphael W. Bostic, president of the Federal Reserve Bank of Atlanta and a member of the Federal Reserve Bank’s interest rate policy committee, says the fed’s fight against inflation will be continuing into 2024.
Bostic, who oversees the bank’s Sixth District, a region that covers Florida, Georgia, Alabama and parts of Mississippi, Louisiana and Tennessee, was in Fort Lauderdale last week to pass along the message that more work needs to be done to fight inflation. But at the same time, he reinforced what the Fed has to offer in the form of data and community dialogue to help localities improve employment climates on their own.
In the company of Broward College President Gregory Haile, Bostic made two public appearances on Thursday, one at the college and another at a dinner sponsored by the Greater Fort Lauderdale Alliance, the economic development arm of Broward County, at the Grateful Palate restaurant on the Intracoastal Waterway in Fort Lauderdale.
At the dinner, one questioner asked, “Is inflation a bad thing or a good thing or somewhere in between?”
“So, inflation is a thing,” Bostic replied to a round of laughter.
When compared to the central bank’s benchmark interest rate of 5.52% to 5.50%, he said, “9% inflation is a problem. It’s a big problem. If you compare it to losing 20 million jobs and 5 million small businesses and thousands of families homeless and evicted, maybe you’re going to put up with high inflation for a time.
“As we think about these assessments, let’s be very transparent on what our alternative case narrative is,” he added. “Once you’ve got high inflation you’ve got to deal with that; you just can’t let it sit there.”
At the college, Bostic told a gathering of students and businesspeople that he likes to reach out to “regular people” to understand the “basics of living,” and to those who are trying to run successful businesses.
“Our job is to ensure everyone who is trying to do that can do it well,” he said.
When he thinks of the state of today’s economy, he said, “the first thing I think about is the pandemic and (how) the pandemic was a major shock to the U.S. economy and triggered a lot of uncertainty.”
“Inflation is very high,” he said. “People get nervous. They get stressed out. We have made a lot of progress in (reducing inflation) in the last year.”
Christopher Dilts / Bloomberg
Raphael Bostic, is shown in 2017, the year he was appointed as president of the Federal Reserve Bank of Atlanta..But there is still an imbalance in the economy between supply and demand.
“There is still a lot of momentum in the economy,” Bostic said. “Demand is still up. If you talk to people they’ll tell you. I talk to businesses and they say, ‘demand for my products is still strong.’”
“We’ve seen inflation come down,” he added. “We need to continue to bring inflation down.”
Last year, he recalled, Fed Chairman Jay Powell delivered an unusually short speech at an annual conference in Jackson Hole, Wyoming.
“In the speech he basically said there is going to be pain,” Bostic recalled. “We are going to do what we need to do get to get inflation under control.”
But that hasn’t happened. One key reason: “The resilience and the strength of the consumer.”
Too aggressive a policy?
Fort Lauderdale Mayor Dean Trantalis, who listened to Bostic’s speech Thursday evening, called the Fed’s target of lowering inflation to 2% as “Draconian” and “probably not the best approach.”
“You could tell that the Federal Reserve Board is perplexed by the robust economy we are continuing to enjoy and experience,” Trantalis said in an interview. “They thought that by rapidly increasing interest rates it would stifle economic growth and the consumer’s interest in spending. It has done some of that. Some of the development projects in Fort Lauderdale have been placed on hold. Some of the developers are waiting for those interest rates to come down.”
“South Florida ever since I moved here in the early ’80s seems to be resistant to a lot of the dynamics that take place in the rest of the country,” he added. “There are a lot of people that continue to move to South Florida. That has kept the economy going when other parts of the country have suffered recession and other dislocations that we do not.”
One private economist noted Friday that the Fed has a “difficult task.”
“The Federal Reserve has a dual mandate,” said Gus Faucher, chief economist of PNC Bank in Pittsburgh, which maintains a substantial presence in South Florida. “They are supposed to focus on maximum employment and price stability, which they define as 2% inflation.”
At the moment, the rate is about 4%.
“The Fed has decided that they need to keep monetary policy tight,” he said. “They need to keep interest rates high further. There is a greater than 50% probability that we will get a recession sometime in the first half of 2024.”
Feeling the pain
Bob Swindell, president and CEO of the Greater Fort Lauderdale Alliance, whose job it is to recruit businesses to set up shop in Broward County, said “interest rates do impact the companies’ ability to expand.”
“The cost to build is a little prohibitive right now when you look at interest rates,” he said.
And some companies considering relocations and the construction of new facilities are awaiting the Fed’s next rate decision.
“For new facilities it is impacting, part of it is a wait-and-see,” Swindell said. “Will they begin decreasing interest rates in the middle of next year? As President Bostic said last night, it depends on where inflation is at. He made it clear last night that the 2% goal is where they’re at.”
Rising housing prices continue to plague would-be buyers. They are deterred not only by rising prices, but by rising mortgage rates, which are now about 7%.
In a recent survey, researchers at Florida Atlantic University and Florida International University found that prices are still on the rise in 100 U.S. markets surveyed for July, although they do not believe they will jump dramatically going forward.
“We are concerned that prices are once again rising and creating a greater gap between average prices and the long-term trend in housing prices, as buyers are faced with rising mortgage rates and price growth on both sides,” Ken H. Johnson, real estate economist at FAU’s College of Business, said in a statement, “However, a close look at the hottest housing markets reveals that while the long-term premiums are rising, the growth is rather slow, suggesting that this is merely an uptick due to the summer selling season.”
Florida markets, including Tampa, Cape Coral, North Port and Greater Miami, are all regarded as being among the most overvalued in the nation.
The price pressures are likely slowing economic mobility in South Florida and elsewhere around the nation. While Johnson said he does not believe prices are deterring people from relocating to Florida, the pace of mobility is not strong.
“The uncertainty of the housing markets are probably, all else being equal, slowing down the pace of mobility not only in the tri-county area but in the rest of the United States,” he said.
The uncertainties of mortgage rates and rents “lower the likelihood of people coming into this area,” Johnson added. “I don’t see it taking a major bite right now, but the inflow of people coming into Florida is going to slow because it is uncertain where (rates) are going to be.”
Community Involvement
For the less fortunate residents who live in South Florida, the Fed, pursuing its goal to buttress employment, is providing localities with data and community connections to help low-income individuals and communities upgrade local job acquisition climates and compensation.
Bostic noted Thursday that it’s not the Fed’s role to write checks and distribute grants to cities to start employment programs and help eradicate poverty. But he said the Atlanta bank can help with research and the sharing of problems and solutions around the district.
While unemployment is low — 3.8% nationally and below that figure in Broward, Palm Beach counties — so are wages and the levels of skills possessed by workers.
Along that vein, Swindell said the Greater Fort Lauderdale Alliance has used Federal Reserve supplied data that led to the location of an employment pilot project in Lauderdale Lakes. The data showed who needed the most help by looking at jobless rates, and the number of children in poverty and on subsidized lunches in the schools.
The alliance, under an initiative called “Prosperity Broward,” identified six ZIP codes spanning 12 cities where the jobless and poverty rates are high.
Lauderdale Lakes was picked because of the severity of the economic conditions facing its residents.
“We’re asking the residents to help figure out what the situation looks like,” Swindell said. “All too often we have organizations that want to do good in the community and they bring the solution from their experience,” not those of the people who live there.
The idea of the program is to provide coaching to communicate available employment opportunities, the skills and credentials needed, and how the residents can obtain them. The alliance is teaming with the YMCA for case management.
“We’re trying to create a model we can replicate in other parts of the county,” Swindell said.
Surprise! Small business optimism rising
Although economists foresee a modest recession next year, a PNC survey of small business leaders nationally found a surprising uptick in optimism for their own companies, with 77% feeling highly optimistic compared to 49% a year ago and 60% in the spring, according to a statement released by the bank this past week..
Nearly half or 47% are “highly optimistic” about their local economies compared with 29% last fall. About a third or 34% feel the same way versus 22% in 2022, the survey found.
Expectations for profits and consumer demand are also stronger this year than last.
“While the large spike in optimism among these business owners is a surprise, it can be attributed in part to the resilience that they demonstrated during the challenging years they have faced since the pandemic began,” said Faucher of PNC Bank. “Business owners who survived that demanding time are confident in their ability to run their businesses and focus on what they can control versus what they can’t.”
Hiring, though, remains a challenge, an employment market phenomenon that has helped persuade the Fed to stay the course with interest rates.
Nine in 10 employers in the PNC survey said they intend “to hold steady on hiring with just 9% planning to increase their staffing and just 1% expecting layoffs.”
“Among businesses looking to hire employees, one in three (35%) say it’s become harder to hire qualified employees over the past six months, similar to last spring (36%) and a year ago (39%),” the bank said. “The most common reason employers say it has become harder to hire is that there are not enough applicants overall (49%).”
