National News

Aging Populace Informs Monetary Policy

By Esther George

Editor’s Note: The following is excerpted from a speech by Esther L. George, president and CEO of the Federal Reserve Bank of Kansas City, delivered at a forum in Helsinki, Finland, on aging and the economy.

Demographic trends are reshaping the U.S. labor force, leading economists and policymakers to rethink the key macroeconomic parameters that drive decision making, and reassess their views about the economy’s longer-run growth potential. Like melting glaciers, changes in global demographics are difficult to see in the near term, but over time they will reshape the landscape. Structural changes of the last 25 years have only gradually reduced the economy’s potential growth rate, its natural rate of interest, and unemployment, but they must be considered in the context of how we respond to business cycle fluctuations. Here are three observations:

First, the share of older individuals (age 55 and up) in the labor force has continued to increase. Twenty-five years ago, older individuals made up roughly 10 percent of the workforce; today, that share has more than doubled. At the same time, the shares of prime-age (age 25 to 54) and young individuals (age 16 to 24) in the labor force have declined. These demographic factors continue to put downward pressure on labor force participation.

Starting in the last recession, we saw labor force participation rates decline steadily. Over the past five years, the participation rate has stabilized as market conditions have improved. One of the important implications of long-term demographic shifts relates to what is known as the trend unemployment rate. Research shows that the changes in the age and skill composition of the labor force have systematically lowered the trend unemployment rate over the past 25 years.

As estimates of the natural rate of unemployment have declined, the scope for monetary policy to foster lower unemployment rates without generating inflationary pressures has increased. Uncertainty about exactly where those natural rates of unemployment might currently lie requires us to be cautious, examine a wide range of information, and continually update the parameters we use as new data arrives.

Second, this shift in labor force composition has coincided with dramatic changes in skills demanded by employers, due to technological advancements, and has resulted in a phenomenon known as job polarization. Job opportunities have shifted away from middle-skill occupations that lead to a middle-class standard of living, and toward high- and low-skill occupations.

Skills demanded in the labor market are rapidly changing, rendering the skills of many less-educated workers obsolete. Equipping workers with new skills in the face of rapid technological advancements continues to be a key issue for labor force participation and policymakers.

Third, is how these demographic forces interact with and influence the outlook for the U.S. economy. In housing, for example, a combination of forces has resulted in high housing prices and rents. These high prices disproportionately impact younger adults as they delay forming households, marriage and having children.

Downsizing by baby boomers could significantly increase demand for new multifamily construction, especially in the suburbs. This downsizing, together with the mortality associated with age, would be expected to free up existing single-family homes. Younger households who move into these homes will free up multifamily units for newly forming households. With housing being a key fulcrum of monetary policy and a sector we know can be prone to boom and bust cycles, these developments will require careful monitoring.

The implications of demographic change and other key structural economic relationships for monetary policy have already played out at the Federal Open Market Committee. According to the Federal Reserve’s Summary of Economic Projections, popularly referred to as the “dot plot,” the median projection for the long-run growth rate of real GDP has come down, the median projection for the long-run unemployment rate has also fallen dramatically, and the median projection for the long-run interest rates has come down notably. Understanding that considerable uncertainty remains around these estimates, policymakers must remain attuned to changes in macroeconomic trends such as aging demographics if we are to achieve our objectives for the economy.

Esther L. George is president and CEO of the Federal Reserve Bank of Kansas City.

CFPB Chief Argues Against Self-interest

Kathleen Kraninger, the Trump-selected director of the Consumer Financial Protection Bureau, is emerging as a very intriguing public official. Criticized early on as inexperienced, Kraninger has turned out to be refreshingly selfless. Confirmed by the Senate last December on a straight-line party vote, Kraninger is attempting to take partisan politics out of the CFPB leadership job.

Rules that restrict a president from removing the CFPB Director are unconstitutional, she says in letters she wrote two months ago to Congressional leaders. Siding with the U.S. Justice Department, Kraninger is urging the Supreme Court to review a case challenging a provision in the Dodd-Frank Act that says the CFPB director can only be removed “for cause.” Although there are exceptions, typically such a position is subject to the President’s unfettered discretion. Kraninger believes the law infringes upon the power of the presidency.

Kraninger’s move is gutsy because should the Supreme Court rule the law is unconstitutional, Kraninger would be susceptible to replacement if a Democrat wins the White House in 2020. Kraninger has not even completed the first year of her five-year term. It would be a lot easier for her to keep quiet. Her advocacy increases the likelihood the highest court in the land will consider the dispute.

But what we know about Kraninger — a 44-year-old attorney — reveals nothing but a dedicated public servant. The Ohio native graduated from Marquette University, volunteered as a teacher in the Ukraine through the Peace Corps., got a law degree from Georgetown, and then served in several government agencies including the Department of Transportation, Office of Homeland Security, the U.S. Senate and the Office of Management and Budget. That’s where she worked for Mick Mulvaney who suggested her for the CFPB Directorship. 

Critics say Kraninger is a Mulvaney protégé, but one could say the same about Leandra English, another government agency staffer formerly appointed to run the CFPB by Richard Cordray upon his exodus from the bureau. Senator Elizabeth Warren (D-Mass.), who advocated for the creation of the CFPB, is no fan of Kraninger, but unlike Kraninger, Warren is seeking higher public office.

It will be interesting to see what the Supreme Court decides regarding the CFPB. The latest twist suggests all of the bureau’s enforcement actions would have to be reversed if the court rules the CFPB Directorship unconstitutional. Regardless of how SCOTUS eventually rules on this, I applaud Kraninger now for putting the job ahead of her career.

Tech Barrier Fading Fast

A deeper dive on ITMs

By Katy Koch Campbell

With restaurants increasingly giving customers the option to order food through touch screens, airline allowing people to do self-service check-ins, and healthcare providers providing Skype sessions with registere nurses, one has to wonder: Is tech still a barrier?


Build Versus Remodel

By Katy Koch Campbell

Guthrie County State Bank in Guthrie Center, Iowa, population 1,507, worked with TurnKey Associates in Waterloo, Iowa, for a year examining ways it could remodel and stay in place downtown. Instead, they turned over their space to city hall and moved to a lot they owned across the street and built entirely new. While it was important to blend in with a flat-front building, one goal was to create a completely energy- efficient building of high-insulated concrete. To enhance customer service a pod system was installed instead of a teller line. Fully accessible on all sides, a customer at the “cash bar” can look over transactions with a concierge while a cash recycler counts the money.


Solar Initiative a Differentiator for Iowa Bank

By Liz Wheeler

The best ideas in banking are often greener than its stock-and-trade currency. So it is at central Iowa’s Peoples Bank, where “clean and green” are on display from rooftop to parking lot, thanks to a recent investment to convert the nine-bank subsidiary of Green Circle Investments to 100 percent solar energy.

  • Sign Up

  • Categories

  • Archive

Software: Kryptronic eCommerce, Copyright 1999-2020 Kryptronic, Inc. Exec Time: 0.06997 Seconds Memory Usage: 3.799858 Megabytes