President and Chief Executive OfficerDr. Raphael W. Bostic is president and chief executive officer of the Federal Reserve Bank of Atlanta. He is a participant on the Federal Open Market Committee, the monetary policymaking body of the Federal Reserve System.
Message from the President
Monetary Policy amid Changing Labor Market Dynamics
By Raphael Bostic, President and Chief Executive Officer
May 24, 2022
Continuously rising prices make it harder for Americans to make ends meet and plan for the future. At the Federal Reserve, we recognize that inflation is causing real hardship, and tamping it down is our top concern.
The Atlanta Fed's Underlying Inflation Dashboard shows that inflation is quite high across many measures. In the May release, the personal consumption expenditures price index, the Fed's preferred inflation measure, stood at 6.3 percent, well above our 2 percent target.
The Fed's policymaking body, the Federal Open Market Committee, has an overarching goal to return inflation to our target range of around 2 percent without triggering significant economic dislocation. Inflation is too high and must be addressed. You are probably aware of steps the Federal Open Market Committee has taken to drive inflation lower.
This high inflation is a byproduct of an imbalance between aggregate demand and aggregate supply for goods and services. It is an economic truism that high demand and low supply result in rising prices, and that is exactly what we have today. Demand for goods and services has been high because many American families, having slowed consumption during the pandemic, have larger balances in their savings account, and the quick government response left many in a stronger financial position than they would have otherwise been in. That picture could be changing, however, and I'll detail that a bit later in this piece.
On the supply side, firms are struggling to produce goods to meet the surge in demand. This shortfall is due in part to supply chain disruptions triggered by COVID shutdowns in production and transportation, both in the United States and abroad. Another factor inhibiting supply has been a shortage of workers to produce goods. Along with the Federal Reserve Bank of Richmond and Duke University's Fuqua School of Business, the Atlanta Fed conducts a quarterly survey of chief financial officers at firms across the United States. In the first-quarter 2022 CFO Survey, more than 75 percent of respondents said their firms are having difficulty filling open positions.
The Bureau of Labor Statistics Job Openings and Labor Turnover survey, or JOLTS, is signaling that labor market tightness. From March 2021 through March 2022, the JOLTS report showed that businesses posted an average of over 10 million jobs as open and available. Yet employers filled only 60 percent of those positions, leaving millions of jobs vacant.
Boosting labor supply is key but won't happen easily
Rebalancing the labor market will be crucial to lowering inflation toward the Fed's 2 percent objective. Labor supply and demand can harmonize through increasing supply, decreasing demand, or both. Let's explore the supply half of that equation first.
Expanding the labor force will not be easy. During the pandemic, the pool of potential workers shrunk because of several forces: double the number of normal retirements; fear of contracting COVID; issues finding childcare; caregiving requirements at home; and government fiscal relief programs. A further constraint on labor participation—increased substance abuse—surfaced in new research from Atlanta Fed economist Karen Kopecky and coauthors.
Moreover, business leaders are telling me they figure labor availability will remain their most pressing concern for 2022. Indeed, nearly 60 percent of respondents in a recent Business Inflation Expectations survey reported labor availability was constraining operations.
A labor supply that comes closer to meeting demand would ease pressure on employers to raise wages so aggressively as to risk sparking a wage-price spiral. That happens when workers see pay gains undermined by inflation and thus demand still higher wages. This results in companies raising prices even more to fund higher wages, and so on. That cycle took hold during the United States' last significant bout of inflation, the Great Inflation of the 1970s and ’80s.
To be clear, right now I don’t detect clear signs of a wage-price spiral in the data nor in conversations with business leaders.
Still, wage-price dynamics are among the myriad uncertainties in the economy that bear close watching and demand great caution from monetary policymakers as we recalibrate our policy.
How are businesses responding to the labor supply challenge? Many firms tell us they are increasing wages and salaries, as you'd expect. And consistent with the very competitive market for talent, the Atlanta Fed's Wage Growth Tracker is registering the sharpest nominal increases in wages since 2001. The problem is that higher pay alone may not do the trick.
One of our economists, Julie Hotchkiss, studied the responses of different age cohorts to pay raises. She found that compared to baby boomers, higher wages are only about half as likely to draw generation Xers to the work force and three-quarters as likely to attract millennials. That matters because gen Xers and millennials make up the vast majority of potential prime-age workers.
In the current labor market, Julie estimates that a 6 percent rise in nominal average hourly wages, as reported by the BLS for January, would close just 16 percent of the labor force participation gap in January 2022 compared to immediately before the pandemic.
On the plus side, it appears that perks that supplement higher wages might make a difference and are catching on among employers. We hear growing anecdotal evidence, for example, that firms are allowing employees to fashion their own hybrid remote/onsite schedules; expanding student loan repayment assistance; giving workers Fridays off; and trying to instill a larger purpose into work beyond collecting a paycheck and boosting shareholder value.
Employers alone won't determine labor force participation, of course. Another key determinant will be how families respond as they increase spending and their account balances begin to fall. Evidence from several sources suggests this is happening. The Bureau of Economic Analysis reports that overall consumption spending started catching up to personal incomes last fall and has topped them since January, while the personal saving rate has tumbled below levels that prevailed for a half-dozen years before the pandemic. Meanwhile, credit card issuers are reporting that card debt has risen. So we could start learning soon whether the erosion of savings lures enough people into the workforce to help rebalance supply and demand.
In fact, promising signs in labor force participation have emerged lately. Prime-age labor force participation has climbed since late 2021, and there has been a recent uptick in hiring and employment for people working in hospitality and other service sectors. But like many aspects of today's economy, uncertainty obscures the meaning of those signs. Some economists think we could see a rebalancing of labor supply and demand over the next year or so. Yet other groups, including some of my business contacts, are less sanguine.
A common thread of these supply side considerations is that they are largely outside the reach of monetary policy. But how these factors evolve will be important for determining how hard we need to push on monetary policy to restore a supply-demand balance in both labor markets and the general economy. As we begin removing policy accommodation, we will have to watch closely, so that we understand the evolution of labor supply in the coming months.
Alongside supply, demand for labor could soften if tighter financial conditions dampen overall demand in the economy. If that happens, employers may be able to reduce the numerous vacancies rather than cut actual jobs. This would be a path for a so-called soft landing, which is achievable but far from a given.
Expeditious but cautious—even fire trucks slow down at intersections
As I said, inflation is too high and must be addressed. The Federal Open Market Committee's overarching goal is to return inflation to our target range without triggering significant economic dislocation.
While that will be a delicate undertaking, I believe economic conditions—importantly including the labor market—are strong enough to allow us to achieve that outcome. Still, uncertainties shroud the economic outlook on virtually every front, from the pandemic to war in Ukraine to supply constraints. Monetary policy makers must be mindful of those uncertainties and proceed carefully in tightening policy.
So as we expeditiously return monetary policy to a more neutral stance to get inflation closer to our 2 percent target, I plan to proceed with intention and without recklessness. We have seen throughout the pandemic that events and market shifts can happen quickly and in ways that dramatically alter the prevailing economic dynamic, in both good ways (the rapid rebound in employment right after the initial lockdown) and bad (the rapid rise of the delta and omicron variants). We all must be ready for the unexpected to occur, assess how risks have changed when it does, and stay aware of shifts in the strength of the economy.
Given the very high level of inflation, some might be surprised by my injecting some caution here. But remember this: even firetrucks with sirens blaring slow down at intersections lest they cause further preventable trouble.
Dr. Raphael W. Bostic took office June 5, 2017, as the 15th president and chief executive officer of the Federal Reserve Bank of Atlanta. He is responsible for all the Bank's activities, including monetary policy, bank supervision and regulation, and payment services. He serves on the Federal Open Market Committee, the monetary policymaking body of the Federal Reserve System.
From 2012 to 2017, Bostic was the Judith and John Bedrosian Chair in Governance and the Public Enterprise at the Sol Price School of Public Policy at the University of Southern California (USC).
He arrived at USC in 2001 and served as a professor in the School of Policy, Planning, and Development. His research has spanned many fields, including home ownership, housing finance, neighborhood change, and the role of institutions in shaping policy effectiveness. He was director of USC's master of real estate development degree program and was the founding director of the Casden Real Estate Economics Forecast.
Bostic also served USC's Lusk Center for Real Estate as the interim associate director from 2007 to 2009 and as the interim director from 2015 to 2016. From 2016 to 2017, he was the chair of the center's Governance, Management, and Policy Process Department.
From 2009 to 2012, Bostic was the assistant secretary for policy development and research at the U.S. Department of Housing and Urban Development (HUD). In that role, he was a principal adviser to the secretary on policy and research, helping the secretary and other principal staff make informed decisions on HUD policies and programs, as well as on budget and legislative proposals.
Bostic worked at the Federal Reserve Board of Governors from 1995 to 2001, first as an economist and then as a senior economist in the monetary and financial studies section, where his work on the Community Reinvestment Act earned him a special achievement award.
He serves on many boards and advisory committees, including the Advisory Committee on Economic Inclusion at the Federal Deposit Insurance Corporation and Georgia's Partnership for Inclusive Innovation. He is also a member of Harvard University's Board of Overseers. He is serving as the 2021–22 chair of the board of directors of the United Way of Greater Atlanta and is the 2022 chair for the Metro Atlanta Chamber of Commerce.
Bostic graduated from Harvard University in 1987 with a combined major in economics and psychology. He earned his doctorate in economics from Stanford University in 1995.
The Federal Reserve Bank of Atlanta serves the Sixth Federal Reserve District, which covers Alabama, Florida, and Georgia, and parts of Louisiana, Mississippi, and Tennessee. The Bank has branches in Birmingham, Jacksonville, Miami, Nashville, and New Orleans.Updated May 2022
Bostic, Raphael W. April 18, 2020. "Opinion: Fed's Working to Aid Economy, Post-Pandemic Recovery." Atlanta Journal-Constitution.
Bostic, R. and Johnson, M. January 15, 2020. "BankThink: How to keep community banks thriving." American Banker.
Boarnet, M. G.; Bostic, R. W.; Rodnyansky, S.; Burinskiy, E.; Eisenlohr, A.; Jamme, H.; and Santiago-Bartolomei, R. 2020. "Do High Income Households Reduce Driving More When Living near Rail Transit?" Transportation Research Part D: Transport and Environment 80.
Bostic, R. W.; Jakabovics, A.; Voith, R.; and Zielenbach, S. 2019. "Mixed-Income LIHTC Developments in Chicago: A First Look at Their Income Characteristics and Spillover Impacts." In What Works to Promote Inclusive, Equitable Mixed-Income Communities, edited by Mark L. Joseph and Amy T. Khare, cluster #1, section A, no. 6.
Boarnet, M. G.; Bostic, R. W.; Burinskiy, E.; Rodnyansky, S.; and Prohofsky, A. 2018. "Gentrification near Rail Transit Areas: A Micro-Data Analysis of Moves into Los Angeles Metro Rail Station Areas." Research Reports, University of California National Center for Sustainable Transportation.
Bostic, R. W. and Molaison, D. Forthcoming. "Hurricane Katrina: Devastation, Possibilities and Prospects." In Economic and Risk Assessment of Hurricane Katrina, University of Southern California Center for Risk and Economic Analysis of Terrorism Events.
Bostic, R.; Kim, A.; and Valenzuela, A. 2016. "An Introduction to the Special Issue: Contesting the Streets 2: Vending and Public Space in Global Cities." Cityscape 18(1): 3–10.
Bostic, R. W. and Ellen, I. G. 2014. "Introduction: Special Issue on Housing Policy in the United States." Journal of Housing Economics 24: 1–3.
Bostic, R. 2014. "CDBG at 40: Opportunities and Obstacles." Housing Policy Debate 24(1): 297–302. doi:10.1080/10511482.2013.866973.
Bostic, R. W. 2014. "Resilient Economic Development: Challenges and Opportunities." In University of Illinois Chicago Urban Forum, edited by M. Pagano. University of Illinois Press.
Bostic, R. W. and McFarlane, A. 2013. "The Proposed Affirmatively Furthering Fair Housing Regulatory Impact Analysis." Cityscape: A Journal of Policy Development and Research 15(3): 257.
Bostic, R. W.; Thornton, R. L.; Rudd, E. C.; and Sternthal, M. J. 2012. "Health in All Policies: The Role of the U.S. Department of Housing and Urban Development and Present and Future Challenges." Health Affairs 31(9): online.
Graddy, E., with Bostic, R. W. 2010. "The Role of Private Agents in Affordable Housing Policy." Journal of Public Administration Research and Theory 20, special issue: 81–99.
Bostic, R.; Gabriel, S.; and Painter, G. 2009. "Housing Wealth, Financial Wealth, and Consumption: New Evidence from Micro Data." Regional Science and Urban Economics 39(1): 79–89.
Bostic, R. W., with Engel, K.; McCoy, P.; A. Pennington-Cross; and Wachter, S. 2008. "State and Local Anti-Predatory Lending Laws: The Effect of Legal Enforcement Mechanisms." Journal of Economics and Business 60(1–2): 47–66.
An, X. and Bostic, R. W. 2008. "GSE Activity, FHA Feedback, and Implications for the Efficacy of the Affordable Housing Goals." Journal of Real Estate Finance and Economics 36(2): 207–31.
An, X.; Bostic, R. W.; Deng, Y.; and Gabriel, S. 2007. "GSE Loan Purchases, the FHA, and Housing Outcomes in Targeted, Low-Income Neighborhoods." In Brookings-Wharton Papers on Urban Affairs, edited by G. Burtless and J.R. Pack. Brookings Institute Press.
Sloane, D. C., with Bostic, R. W. and Lewis, L. B. 2007. "The Neighborhood Dynamics of Hospitals as Land Owners." Lincoln Land Institute publication.
Bostic, R. W., with Longhofer, S. D. and Redfearn, C. 2007. "Land Leverage: Decomposing Home Price Dynamics." Real Estate Economics 35 (2): 183–208.
Bostic, R. W. and Prohofsky, A. 2006. "Enterprise Zones and Individual Welfare: A Case Study of California." Journal of Regional Science 46 (2): 175–203.
Bostic, R. W. and Gabriel, S. A. 2006. "Do the GSEs Matter to Low-Income Housing Markets? An Assessment of the Effects of GSE Loan Purchase Activity on California Housing Outcomes." Journal of Urban Economics 59: 458–75.
Black, H.; Bostic, R. W.; Robinson, B.; and Schweitzer, R. 2005. "Do CRA-Related Events Affect Shareholder Wealth? The Case of Bank Mergers." The Financial Review 40(4): 575–86.
Bostic, R. W. with Robinson, B. 2004. "Community Banking and Mortgage Credit Availability: The Impact of CRA Agreements." Journal of Banking and Finance 28: 3069–95.
Bostic, R. W., with Calem. P. S. and Wachter, S. M. 2004. "Hitting the Wall: Credit as an Impediment to Homeownership." In Building Assets, Building Credit: Creating Wealth in Low-Income Communities, edited by N. Retsinas and E. Belsky. Joint Center for Housing Studies and Brookings Institution Press.
Bostic, R. W., with Redfearn, C. 2004. "Book Review [The Color of Credit: Mortgage Discrimination, Research Methodology and Fair Lending Enforcement, by Stephen L. Ross and John Yinger]." Journal of Regional Science 44(1):162–65.
Bostic, R. W., with Aaronson, D.; Huck, P.; and Townsend, R. 2004. "Supplier Relationships and Small Business Use of Trade Credit." Journal of Urban Economics 55(1): 46–67.
Bostic, R. W., with Barakova, I.; Calem, P.; and Wachter, S. 2003. "Does Credit Quality Matter for Homeownership?" Journal of Housing Economics 12(4): 318–36.
Bostic, R. W. 2003. "A Test of Cultural Affinity in Home Mortgage Lending." Journal of Financial Services Research 23(2): 89–112.
Bostic, R., with Robinson, B. 2003. "Do CRA Agreements Increase Lending?" Real Estate Economics 31(1): 23–51.
Bostic, R. W., with Calem, P. S. 2003. "Privacy Restrictions and the Use of Data at Credit Repositories." In Credit Reporting Systems and the International Economy, edited by Margaret J. Miller. Boston: MIT Press.
Bostic, R. W., with Martin, R. 2003. "Black Homeowners as Gentrifying Force? Neighborhood Dynamics in the Context of Minority Homeownership." Urban Studies 40(12).
Bostic, R. W. 2002. "Equal Access to Credit." In 25 Years of Credit Research, edited by Mike Staten. Washington, DC: Georgetown University Press.
Bostic, R., with Canner, G. B. 2000. "Consolidation in Banking: How Recent Changes Have Affected the Provision of Banking Services." The Neighborworks Journal.
Bostic, R., with Avery, R. B. and Canner, G. B. 2000. "Highlights of a Survey of the Performance and Profitability of CRA-Related Lending." Housing America Update.
Bostic, R., with Avery, R. B. and Canner, G. B. 2000. "CRA Special Lending Programs." Federal Reserve Bulletin 86: 711–31.
Bostic, R., with Avery, R. B.; Calem, P. S.; and Canner, G. B. 2000. "Credit Scoring: Statistical Issues and Evidence from Credit Bureau Files." Real Estate Economics 28: 523–47.
Bostic, R., with Canner, G. B. 1998. "New Information on Small Business and Small Farm Lending: The 1996 CRA Data." Federal Reserve Bulletin 84(1): 1–21.Bostic, R., with Avery, R. B. and Samolyk, K. A. 1998. "The Role of Personal Wealth in Small Business Finance." Journal of Banking and Finance 22: 1019–61
Other Fed Work
Bostic, R.; Bower, S.; Shy, O.; Wall, L.; and Washington, J. September 2020. "Digital Payments and the Path to Financial Inclusion." Promoting Safer Payments Innovation Series no. 20-1.
Raphael Bostic. "Quantitative Frightening?," macroblog. January 16, 2019.
Raphael Bostic. "What Does the Current Slope of the Yield Curve Tell Us?," macroblog. August 23, 2018.
Raphael Bostic. "Thoughts on a Long-Run Monetary Policy Framework" macroblog series:
"Framing the Question." March 26, 2018.
"Part 2: The Principle of Bounded Nominal Uncertainty." March 27, 2018.
"Part 3: An Example of Flexible Price-Level Targeting." March 28, 2018.
"Part 4: Flexible Price-Level Targeting in the Big Picture." April 2, 2018.
Raphael Bostic. "A Big-Picture Look at the Economy. " ECONversations. February 21, 2018.
Economy Matters Podcast Episodes
Raphael Bostic (interviewer) and Anthony Orlando. "'These Local Problems Do Have Some National Solutions': A Conversation about Inequality." February 27, 2020.
Raphael Bostic (interviewer) and James Fallows. "Wings over America: A Conversation with Author James Fallows." . January 2, 2020.
Raphael Bostic (interviewer) and Alessandro Acquisti. "Speaking Publicly on Privacy: A Conversation about Digital Privacy." April 2, 2019.
Raphael Bostic (interviewer) and Jerome Adams. "Health Is Wealth": A Conversation with the U.S. Surgeon General." January 3, 2019.
Raphael Bostic (interviewer) and Raj Chetty. "'A Kid Should Have a Fair Shot': A Discussion of Economic Mobility." October 22, 2018.
Raphael Bostic (interviewer) and David Lusk. "'It's a Really Dramatic Change': A Discussion of the Economics of Food." October 12, 2018.
Raphael Bostic. "'It's a Special Job': A Conversation with Atlanta Fed President Raphael Bostic." April 27, 2018.
Message from the President
Raphael Bostic. "Observe and Adapt: Appropriate Monetary Policy in the Face of Inflation." February 1, 2022.
Raphael Bostic. "Defining the Pursuit of Maximum Employment." September 27, 2021.
Raphael Bostic. "A Moral and Economic Imperative to End Racism." June 12, 2020.
Raphael Bostic. "A Message from Federal Reserve Bank of Atlanta President Raphael Bostic." March 17, 2020.