Anyone who was worried — based on Fed chair Janet Yellen’s recent comments about interest rates rising as early as 2015 — that she was turning hawkish should be reassured by a speech she gave today in Chicago. Her comments focused on what the Fed should still be doing at this point in the recovery to promote a stronger labor market. She made it very clear that she sees our lingering post-financial-crisis unemployment problems as cyclical, rather than structural. In other words, there’s a lot of slack in the labor market, and there’s more the Fed can do to fix that. “The government has the tools to address cyclical unemployment,” Yellen said. “Monetary policy is one such tool.” That’s why the market shouldn’t take the Fed’s recent scale back of its asset-buying program as evidence that it’s giving up — merely that it’s changing its focus.
What’s interesting is where Yellen seems to be throwing her attention: community development. Her speech in Chicago was given at the National Interagency Community Reinvestment Conference, and kicked off a day that the chairwoman will spend touring the City Colleges of Chicago high-tech manufacturing program. Now, I’m not a Fed historian, but I’m willing to bet that this in the first time in quite a while that any Fed chair has done a community college and manufacturing tour. Ben Bernanke and certainly Alan Greenspan would have been more likely to hang out in the circles of power on Wall Street and in Washington, D.C., either by choice or by force.
But under Yellen, community development, which has always been part of the Fed’s mandate, though an oft-neglected one, seems to be coming back in vogue. As I wrote in a column a few months ago, America’s central bankers are giving it more and more attention, now that the effects of an easy-money environment seem to be spent. Boston Fed president Eric Rosengren was a catalyst for the Working Cities challenge, which offered up grant money to Massachusetts cities that could come up with the most politically collaborative ways to bolster job growth. (The fact that the winners had to demonstrate cross-aisle cooperation in economic development was an interesting nudge to a dysfunctional Washington.) The Kansas City Fed is starting a similar program. The San Francisco Fed is partnering with the Low Income Investment Fund, a community-development institution that bridges the gap between low-income borrowers and private capital.
All of this speaks to the fact that over five years on from the financial crisis, banking has still not been remoored in the real economy. Wall Street isn’t really interested in grassroots lending or economic development, no more so than before the crisis. Why should it be, when trading is so much more profitable? But Yellen is clearly taking her role as America’s banker in chief seriously, and acting on the sort of “kitchen-table economics” she promised when she spoke to TIME on the day of her confirmation. Today’s speech and the increasing Fed action around economic community building shows that, as she put it, “the scars from the Great Recession remain” and that the Federal Reserve owes it to the American people to bail out not just banks, but workers too.
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