John Williams revels in the highbrow nature of his job as president of the San Francisco Federal Reserve Bank.
Williams, who earned a doctorate in economics from Stanford University, has published or contributed to dozens of articles such as “Measuring the Effect of the Zero Lower Bound on Medium-and-Longer-Term Interest Rates.”
Williams said his nerdier traits make his gig at the Fed a dream job. The Fed is blissfully sheltered from politics, he said, freeing him to focus on tracking the economy, regulating banks and voting on monetary policy.
But he’s not always so scholarly. When he’s not eyeballs-deep in numbers, Williams, 54, enjoys playing video games online and rooting for Bay Area professional sports teams.
Q: What does the Federal Reserve Bank do?
A: We distribute and process all the currency in the United States. Look at this $20 bill. It’s issued by a Federal Reserve Bank. This one is ripped up. It will probably get shredded when it goes through our machines.
We have 400 people supervising banks in the nine Western states in our district. We also have an active role in community development, working with local governments, nonprofits and banks, primarily driven by the Community Reinvestment Act, which calls for banks to lend back into their own communities.
Every six weeks I go to Washington and vote on monetary policy.
Q: How does Idaho fit into your nine-state region? How is our economy doing?
A: My district covers about 20 percent of the U.S. economy. We have the high-tech centers in the Bay Area and Seattle and elsewhere, but there are thousands of economies happening at the same time.
As for Idaho, the economy is going quite well. Unemployment is below 4 percent. Job growth is good. The agricultural sector has struggled with low prices for a couple of years. But generally, a lot of people want to work here. A lot of employers like the business climate here.
Q: The Fed cut the interest rate to 0.25 percent in 2008 — an all-time low — in response to the dawn of the Great Recession, and didn’t raise it until December 2015. It is now 0.75 percent, well below the Fed’s norm of 2 to 5 percent. What was the strategy there, and what is the plan for the interest rate going forward?
A: After we took the hit of the recession, the lower interest rates meant it was cheaper to buy houses or cars. That boosted the economy and helped put the country back to work. We’ve added well over 14 million jobs since the trough of the recession, and unemployment is below 5 percent nationwide.
The economy still has a lot of momentum. It’s like driving a car. Low interest rates are like stepping on the gas. As you get the car up to speed, you need to be at a pace with a longer-run trend, so you take your foot off the gas. Raising the interest rate is one way to take some of that pressure off of the economy.
We’ll make sure the economy doesn’t overheat with an imbalance or a housing crisis where we have to put on the brakes.
My goal is for a “Goldilocks” economy, where we grow a little less than 2 percent, unemployment stays below 5 percent and inflation is below 2 percent. That way, we won’t overheat or get cold: We stay right in the middle.
Q: The Fed has said it expects to gradually increase interest rates this year. Do you support that plan?
A: My preferred approach is to gradually move interest rates to more normal levels. With the strong job growth we’ve seen, the economy will be able to weather somewhat higher interest rates. I’m not worried about a hard landing.
There’s a strong argument to move sooner rather than later. The economy is outperforming on a number of dimensions. Unemployment is down. Job creation is surprisingly strong. Inflation has moved back to 2 percent. We’re well positioned to raise interest rates gradually.
Q: In Idaho we have a terrific unemployment rate but poor average wages. How do you weigh those things as you evaluate the strength of the economy?
A: When wages pick up — and they have over the last couple of years — it’s a sign that the labor market is strengthening nationally as well as here. But wage growth has been slow — 2.5 to 2.75 percent, which is slow compared to historical norms.
More important is the productivity growth, which has been very slow across the country.
Q: Is productivity flagging?
A: We had an extraordinary period of productivity growth in the mid-’90s — the tech boom. Recently, we’re not seeing the same kind of innovation. Every year, there are some advances — the new car, the new cellphone that is a little better than last year’s. But the pace has slowed.
We haven’t seen the kind of breakthrough technological changes that affect productivity in the last decade. Previously, we saw increases with use of computers to manage businesses for inventory control, to do a lot of things that used to be time consuming.
Today, a lot of the innovation has been in social media and other things that might make life better or easier to order something on your phone. But that doesn’t show up in the productivity statistics that drive wages.
Q: That doesn’t mean innovation won’t produce a robot that can type better than I can.
A: When they replace economists with artificial intelligence, I’ll be with you, on to the barricades.
The hollowing out of the middle class is in occupations that can be replaced by computers or automation. Those are the careers that have been really lost in income, jobs and wages.
The classic example is the bookkeeper. They basically collected records to give to a manager or accountant. With Excel and software today, we don’t have bookkeepers. It’s all done by computers.
But if your job uses a computer — like an accountant’s — your income and the number of jobs have increased quite a bit. Computers have made their lives easier. Their value-added is higher.
So it’s about providing the human capital — the education, the job training, the skills — for the jobs of the future.
Q: President Trump has talked about renegotiating or repealing NAFTA. What role does NAFTA currently play in the economy?
A: One narrative is a lot of our job loss is associated with trade, just as with automation. There are certain occupations or sectors where we’re just not as cost-effective as producers around the world.
If you get the data and look at manufacturing employment in the U.S. as a share of the labor force, from 1948 when they started collecting the data to today, it’s a straight line going down.
It’s actually flattened out recently, meaning we have less loss. [The trend] started before the trade agreements and basically reflects that we’re one of the wealthiest countries in the world.
We are extremely productive, and the demand for manufactured goods has its limits.
We’re producing record numbers of cars. We have a huge increase over time in terms of output. But because our productivity has got so much better every year, the number of people needed to produce it has gone down. That’s driven by technology and automation, and has been going on for centuries.
Q: So those manufacturing jobs are gone for good?
A: What we’re really talking about globally is that productivity growth and automation are moving us away from a manufacturing economy to more of a services economy. I’m not just talking about hamburger flippers and baristas. A lot of services jobs are high-paying sectors, such as in areas like health care and education. These are sectors that, with the right work force, have a lot of job opportunities.
Q: Some say our unemployment statistics lowball workforce participation. Would you like to see the formula tweaked?
A: We need to make sure our economy, which is changing more and more into a digital economy, is being accurately represented in the data we have on unemployment, spending and prices.
Similarly, the gig economy — all the people who are maybe splitting time between working maybe part time at the airport, a store and a driving service — is becoming more common. We need to collect data in a way that reflects that.
Q: Congress and President Trump have talked about dismantling Dodd-Frank, which imposed a raft of regulations on the financial sector following the financial crisis. If that happens, what effects do you expect?
A: During the crisis, a lot of banking left the banks to what people call “shadow banking” — investment banks, insurance companies, hedge funds and other parts of the financial system that weren’t being regulated. Part of Dodd-Frank’s focus was to make us not only think about the health of the banks themselves, but to broaden that to the rest of the financial system. Even if you weren’t a bank, you could be regulated as a systemically important institution if your failure would be a threat to the financial system as a whole.
That’s my main lesson from the last 20 years and my concern when people say they want to dismantle this.
We need to make sure whatever comes out of that political process, we don’t lose this broad view and understanding that it’s not just the banks.