A lot of data – on jobs, wages, inflation, housing starts, manufacturing orders and the like – figures into the Federal Reserve’s decision to maintain or adjust the federal funds rate. This is the interest rate at which depository institutions – like banks, savings institutions and credit unions – and government-sponsored enterprises borrow from and lend to each other overnight to meet short-term business needs. The target for the federal funds rate is set by the FOMC and has varied widely over the years in response to prevailing economic conditions.
But it’s not all about the numbers.
Getting a full picture of the U.S. economy and confidence in its growth requires anecdotal information you can only get from people like that local flower shop owner who’s thinking about expanding, that community bank president who’s trying to grow deposits or that manufacturing firm CEO who’s deciding whether or not to hire. The Federal Reserve relies on its 12 Reserve Banks and branches to be its eyes and ears on the ground in every corner of the country from San Francisco to Boston.
The role of Reserve Bank boards of directors is to help maintain effective oversight of Reserve Banks and ensure that Reserve Banks operate smoothly. Directors also assist the Federal Reserve with a wealth of information on economic conditions in virtually every corner of the nation. The Federal Open Market Committee (FOMC) and the Board of Governors use this information to make decisions about monetary policy.
A PNC Link to the Federal Reserve
PNC regional presidents Laura Gamble, in Greater Maryland, and Kate Kelly, in Minneapolis-St. Paul, know how the Fed’s localized process for gathering insight on economic conditions works. They’re an integral part of the process.
Gamble serves on the board of the Federal Reserve Bank of Richmond’s Baltimore branch, appointed in January 2016. And Kelly, who led Minnesota Bank & Trust before joining PNC, was re-elected to a second three-year term on the Federal Reserve Bank of Minneapolis board.
Both say their main duties are twofold: providing timely feedback on their local economy, which the FOMC and the Board of Governors, chaired by Federal Reserve Chair Janet Yellen, use to set monetary policy; and helping residents in their communities understand what the Fed is all about.
They recently talked with Insights about their Federal Reserve board service and how it impacts their roles at PNC.
Q: How do you get the pulse of your local economy to help the Fed?
Kelly: Economists come to us nine board members with questions they’d like answered — ranging from Fed policy changes that could most significantly affect our region, to the effects of market fluctuations on business forecasts. They have the data, but what they also value is the current pulse of what people here in Minneapolis-St. Paul are thinking, which would help them anticipate an outcome. I typically meet with eight to 12 business owners or CFOs on a regular basis, ask these questions and take good notes. It ends up being a thoughtful, valuable discussion that complements our economists’ stats. Every once in a while, their thoughts even get into the Beige Book, a comprehensive report published eight times per year by the Federal Reserve Board that contains anecdotal information on current economic conditions by each Federal Reserve Bank in its district.
Gamble: I’ll talk to PNC corporate clients about their six-month to one-year outlook. For example, are they hiring? Do they have any challenges to hiring? At a recent meeting with large manufacturing companies, we talked about the potential for trade policy changes on their business and wage inflation. I then take that information back to the board. In a sense, I’m using PNC clients as a focus group, and get great insight with a more global perspective.
Kelly: The Fed’s unique, decentralized structure allows the system to gather information from our diverse economies across the country. For example, the Ninth District has industries ranging from mining, tourism and timber in the West, to wheat farming, ranching and energy mining in the center, to corn, soybean and dairy farming, tourism, timber and light manufacturing in the East.
Q: Why is the community outreach component of the Fed board important?
Gamble: There’s a lot of misunderstanding out there — questioning of the Federal Reserve and its role. Most people here drive by our Fed branch and have no idea what it does. That education falls on us as board members, so we explain how the Fed’s work affects them. We’re also focused on community development, helping to bring under-represented groups together to talk about financial and economic issues.
Kelly: We’re really ambassadors for the Federal Reserve. Our board hosts town halls with residents to educate them and learn what’s on their minds. Opportunity and inclusion is a big focus for the Fed and the Minneapolis board in particular — working to identify barriers that limit full participation in economic opportunity and advancement.
Q: How has your Fed board experience helped you in your regional president role at PNC, and vice versa?
Kelly: The understanding of the Federal Reserve that I’ve gained has helped me in banking and business discussions with clients and prospects. The community outreach nature of the board allows me to orchestrate discussions at a “what’s best for our economy” level, and give business leaders and bankers a voice. In the end, we’re really providing a public service as board members, and that reflects well on PNC.
Gamble: My roles as a Fed board member and PNC regional president are very complementary. I try to talk to our top-quartile business customers a couple times a year, so the need to gather information for our board roundtables gives me a great opportunity to get their input. They also like to hear what the Fed is reporting, so it makes for a good dialogue.
Q: How would you describe your board experience?
Kelly: Amazing and enlightening. It has confirmed for me that we have very smart, thoughtful people at the Federal Reserve making good decisions, and our country is fortunate because of it. They’re public servants who are working extremely hard in service of our country. As board members, we’re doing the same. And it’s wonderful to be part of that community.
Gamble: I’ve had a lifelong career in finance, and it’s amazing how you get a little star-struck when you enter the conference room in Washington where the Board of Governors meets. When I meet and talk with them, I have a huge appreciation for their work. For me, it’s fascinating. I don’t often get a chance to delve into economics as deeply as this and to have this level of discussion as part of my day. It’s a great opportunity to stretch and learn.
I can tell people that I have one-sixteenth of an inch of influence on national monetary policy. And that’s pretty exciting.