26th Annual Financial Markets Conference Transcript: Keynote Address: Raphael Bostic - May 10, 2022

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Keynote Address: Raphael Bostic

Atlanta Fed president and CEO Raphael Bostic discusses the effects of the COVID-19 pandemic and world events on the current economic landscape and outlook, the labor market, inflation, monetary policy, and more in a conversation with moderator Julia Coronado, founder of the economic research firm MacroPolicy Perspectives and a clinical associate professor at the McCombs School of Business at the University of Texas.

Transcript

Julia Coronado: We are live, I think, on YouTube, so we're going to go ahead and get started. This is it, people; this is it. [laughter] I want to first start by thanking Raphael Bostic, President Bostic, for hosting this incredible conference. It's great to be back. It's great to be back, and we covered a lot of ground. We covered CBDCs, and cyber risk, and balance sheet policy. I'm going to touch on all of that as we go through this conversation, and hopefully... I've been noticing, of course, as I'm watching my Bloomberg on my phone as I'm sitting through these amazing panels, that you were just busy creating headlines, [laughter] saying things about monetary policy, so that kind of leaves me without much of a scoop, but...

Raphael Bostic: I have a feeling you're going to find a way to get one anyway. [laughter]

Coronado: I'm going to find a scoop; I'm going to try to find a scoop. We're going to start really easy, though. We're going to start with the economy. [laughter] What could be easier than forecasting the economy? The last summary of economic projections, the central tendency range of growth estimates for GDP this year, were 2.5 to 3 percent. That was down from 4 percent median in December. The Bloomberg consensus as of today was 2.2 percent. I want to start with, what is your GDP forecast for this year? How has it changed? What are you seeing in terms of war in Ukraine, Chinese shutdowns? What's the landscape for the economy for you?

Bostic: Well, that's a very good question, but first of all I just want to say it's so good to see you all. I want to thank you all for coming. I've had a lot of fun over the last couple of days. I hope you guys have as well and learned some things. It's been really nice.

In terms of the outlook, I think we're right now at 2.6 for the year, something in that range, and it is down from where we were before. What is true is that every forecast I've had about the length of disruption, how long the challenges are going to last in terms of labor supply resolution...they've all been wrong, [laughter] and they've been wrong to the short side.

Right from the beginning, we ran a number of surveys, and we asked businesses in all of our surveys: How long do you think that your troubles are going to last? At the very first surveys, the answer was, "We'll be done in four or five months." Then we asked again, and then it's like, "Oh, we'll be done in 8 or 12 months." Now, they don't really talk like that. They're just like, "It's somewhere off into the future" and it just keeps extending. That has really informed my view as to how robust the economy is going to be able to be.

There is strength in the economy; we see lots of jobs being created, the demand for goods continues to be strong. When I talk to businesses, and bankers in particular, they tell me that there's still a lot of cash out there. People have money that they're able to deploy in consumption, but the supply side is going to continue to be a challenge as well.

That's the baseline, and then the other dynamic which makes forecasting extremely difficult is that things happen. I was about to give a speech to the National Association of Business Economics, and several days before...it was a formal speech, we had written everything up, it was going to be on the web, all that kind of stuff. Then, there's a war in Ukraine. We had to ditch half the speech and rewrite a bunch of stuff because all those things happened. It really, for me, introduced uncertainty into the economy, and the risk that was introduced was really heavily tilted to the downside. We had to make that adjustment. Today, we have lockdowns in China, which I don't think people had on their radar when we were at NABE, right?

Coronado: No, they definitely did not.

Bostic: This is another thing that's happened, and the potential impact there is also quite negative. I'm just waiting and bracing for the next thing, and what the next thing is going to be. What that means is that these challenges are likely to last longer than we would expect. We're going to have to be more robust in our policy response as a result, but we're also going to have to just be more...the words I'm using are "observe and adapt." We have to be much more observant. We have to be ready and looking in many places for possible new developments, and then we have to adapt our policy once we understand what's happening in those places.

With all that, that sounded kind of bleak, but I still remain fairly optimistic. The labor market is producing lots of jobs still on a monthly basis. There's a lot of momentum, and I don't talk to any business leaders who are telling me they are contemplating laying anyone off. That's not in the mindset for...

Coronado: Anyone outside the crypto sphere, maybe. [laughter]

Bostic: Yes. So you may know more about that than I do. [laughter] In that regard, it's really about, how does the economy evolve such that it can position itself to push up the supply to meet the high demand that's out there? If we can get that imbalance to really start to narrow, I think that's really the way we're going to start to see inflation come down.

Coronado: That's an interesting framing, because it's a unique moment as we're starting from this very high inflation and focus on restoring price stability. You've got these shocks that, in a different world, you might be more focused on the downside risks to demand, but they're also coming with a burst of inflation that could exacerbate an already challenging situation. I don't suppose you have a crystal ball that tells you which is the more salient risk, the upside risks to inflation or the downside risks to growth?

Bostic: No crystal balls. [laughter] I don't really do that anymore. What I will say is this: I think we have an opportunity to get to a place where you don't have deep disruptions and deep pain in the economy. We know that employers have a lot of excess demand for labor, and as demand comes down, that's going to be hit.

If you think about all the job vacancies—we're only filling about 60 percent of them right now—so that gap, that's a gap that will have to narrow as part of any kind of adjustment or adaptation that the economy has. Then we'll have to see how some of these supply things work out. On the supply side, there are many different dimensions here that I think are really interesting. One is the well and widely reported on supply chain dynamics, and this adjustment from a "just in time" strategy to something that introduces a bit more redundancy and resilience. People call it "just in case." I think that will allow us to have less volatility, in terms of the supply that actually gets to marketplace, which is a good thing.

Coronado: Over time.

Bostic: Exactly. Then we also have labor market issues that we have to work through. I think about...my team told me a lot, as the retiree bump happened, that we have just a large number of people that are coming out at a time, and at a pace that you just didn't see. The question we kept having was, "Well, are they gone for good? Or are they going to come back?" It turns out that that's in flux, so there's stuff that's happening there.

I have some researchers who are doing some research, some economists in our team who are doing research, on who is not coming back. One of the findings was that women with young children were not coming back as much, because the child care industry had been devastated in the very early stages. That's now in flux, and as the schools start to get settled out, that creates more opportunities for them to come back as well, and that's something to think about.

There are all these things on the labor market side that are in flux, and then when we talk to businesses another thing they're telling us is, "This labor challenge that we're having is getting us to think hard about, how much should we take the plunge on automation, to say that we can sort of diversify our way out of needing and having such a crunch on the people side?"

It was very interesting. Going into the pandemic, there were a lot of employers who were like, "Yeah, we've been thinking about this automation thing, and adding technology, but we're not really sure we want to do it." Six months in, they were like, "Yeah, we're thinking a bit more;" 12 months in, they were like, "Yeah, we're really thinking about it." I'm starting to hear things to suggest that they're starting to make the investments to have that pivot. That will also have implications for the supply side.

All of that has to be resolved, and then we think about the Chinese situation, the Ukraine situation. There are just a lot of moving parts here that we have to...

Coronado: Some of which are potentially positive. I remember you used to do these conferences looking at automation, and one of the great concerns was displacement of people. Now we're in such a strong job market that actually...

Bostic: We can manage with that. Yeah, that's exactly right.

Coronado: You can manage it, because there's so much demand that it could, in the end, down the road...

Bostic: It's interesting. The conferences...hopefully you all follow this conference as well. It's on technology-enabled disruption, and we do it with Richmond and Dallas, and it's been a very good conference over the years. I think Pat, you've been to some of those as well. Loretta, I don't know if you've been to one of those, but we'll get you. The impetus was that technology was really disrupting these markets in ways that were going to be adverse to workers, adverse to the human capital. In that space and that time, that was the overarching consideration. As you note, now we're in a situation where we don't have enough workers.

Coronado: Exactly the workers that you were worried about being displaced are the ones in the highest demand.

Bostic: Exactly right. That's exactly right. It's actually a very, very interesting shift.

Coronado: Fascinating turn of events, So, potentially some good news down around the bend.

Bostic: Fingers crossed on that one.

Coronado: You've spoken about, and Chair Powell spoke about, you need to see...you've kind of got a map towards a more neutral setting, and then take a look around. First of all, what is it that you need to see to convince you or give you confidence that you're on a path to price stability? What are you looking for in the inflation data, or the economic data? What are the markers you're looking for?

Bostic: I think there are a couple of markers. One is, in the inflation space on a month-to-month basis, how are we progressing? Some of the more recent numbers have been positive in this regard, in that it's not moving into a worse posture. It suggests there is some kind of moderation that's happening in that space, and that's positive. My hope, and the thing I'm looking for, is does that continue, or do we start to stall, in which case, we're going to have to think about a different kind of policy response. Right now, I'm just going to observe and watch.

Coronado: We've got CPI [Consumer Price Index] tomorrow morning.

Bostic: Yes, we do. [laughter] I have to thank the conference organizers that this happened the night before [laughter] as opposed to the afternoon after, because that would be potentially a different conversation.

Coronado: More challenging.

Bostic: Look, I'm actually really thinking hard about that. Then a second thing is how our policies start to flow through the economy, and do we see demand pulling back in important spaces. We are not seeing that now. I want to be very clear, as we talk to people, they say, "Demand for our goods [employers, they all say it's super strong] is at the same or basically the same levels as they were over the last several months." I actually think there is some possibility that we could see a pretty rapid response, or faster than we might see otherwise.

For that position, I really take how the financial markets have responded to our policies, which, to my mind, have been incredibly fast and incredibly robust, relative to what one might have expected before. If that mirrors itself in terms of in the real economy side, then we might start to see shifts. We have a lot of conversations in our building about the fact that in this environment, many Americans, a large number of Americans, have never lived in a high-inflation environment, to where they're thinking about it on a day-to-day or week-to-week basis. We don't actually know how they're going to respond to it. There is some possibility that people, particularly those in the middle income levels and below, are going to retrench pretty strongly because they have always had a mindset, "I could be in trouble, so I have to be careful." If that mindset takes over, then we might actually see some strong responses and reactions in there.

Coronado: Some more deeply embedded dynamics.

Bostic: Exactly. Exactly right. We're getting hints that businesses think they're seeing it, but they're not really sure yet. We'll continue to ask to see if they're seeing shifts in how consumers are approaching their purchases.

Coronado: Are businesses looking at this mainly on the demand side, in terms of selling products, or are they looking at it also in terms of the employment side? Are we in the dreaded wage price spiral? Are we seeing their employees make demands for raises based on inflation, for example?

Bostic: We are seeing that, but not in the "spiral dynamic" way. When I talk to employers right now, what they tell me is that, "Yes, we are increasing our wages faster than we have in the past. Yes, we are sensitive to the inflation that's happened, but our approach to this has really been we're in catch-up mode. Our staff knows that prices have moved, and they know their wages haven't. If we're going to keep them, we need to at least try to match that so that our workers are not worse off."

We always follow that up with the question, "Is this your new normal? Do you think you're going to be chasing inflation continuously?" They all say no. They all say, "We're going to do what we need to do today to keep our folks, but our expectation right now is that we're going to be able to return our dynamic to how we were doing it before." Once this all settles out, they think that they're going to be able to settle it out as well. That's a good thing.

For me, that's an important thing for us to monitor and to make sure that that mindset isn't changing. We are asking, I think, the right questions to stay on top of this, so that if there is a shift then we can really let that inform how we think about policy.

Coronado: Yes, and one of the comments here on the Q&A...you all know how to use Pigeonhole by now, so if you have questions, please submit them. One person is congratulating you on the swear jar, [laughter] the swear jar being that you banned the word "transitory" from the building.

Bostic: Yes, that's a dollar. [laughter]

Coronado: I'll buy you a drink later.

Bostic: That's a deal. I'll take that.

Coronado: Obviously, there's sort of a race. You're trying to get in front of that dynamic. If you see that dynamic, what would the implications be: a higher R-star, a higher neutral rate?

Bostic: I think both of those things. I think you'd see me, at least, advocate for a steeper trajectory for our policy. We're not saying that now, and that's the important thing. For me, I think we've really benefited in our Bank from having a group of people whose job it is to talk to people in real time. We call it the Regional Economic Information Network, and they are collecting information on a regular basis from business leaders and asking them things like, "What is stressing you out right now? How are your customers responding right now? What are your prospects moving forward?"

They were telling us, before things were showing up in the aggregate data, that this is going to last longer. The conversations we're having, the contracts we're having to sign, the relationships that we are cultivating and have continued to, are all showing us that this isn't ending in September, this is not going to end in October, this is going to last for a much longer time. Once we started hearing that, I had to take that on board and make sure that people, the American public, actually knew that we were noticing what they were starting to feel. I think that was a really important thing for us.

You heard that in the chair's press conference, when his opening statement was to the American people. I think that that is an important constituency for us, just so that our institution is viewed with the proper perspective as to what we're trying to accomplish and who we're actually trying to serve.

Coronado: You're expressing a flexibility in policy, to go more aggressively if needed, but you've also been on the tape in the last couple of days saying you're not ready to advocate for a 75 basis point, or an acceleration in tightening. That you'd prefer to kind of, as Chair Powell suggested, go with a couple of 50 basis point moves.

Bostic: Yes, we definitely need to get away from maximum accommodation, which is where we have been for more than the better part of two years. That isn't a stance that made sense. We needed to let the economy stand on its own. Inflation, again, is driven by this imbalance between high demand and low supply. A lot of the dynamics we have in play, the forces that are pushing us, could actually hit the demand side as well. If you think about the war in Ukraine, all this uncertainty. People don't like uncertainty, and that could cause a retrenchment and things could settle down. I wanted to make sure that we stay open to all those possibilities, and keep our focus, or keep my focus, at least, on that gap. If we see things that are narrowing that gap, that then tells me that our policies...

Coronado: The gap between supply and demand.

Bostic: Right. The gap so that people are not seeing scarcity as intensely as they are seeing it today. If that gap starts to narrow, and as we've talked, there are many sources that could drive that, then we might need to be able to do less in our policy. I think there is a benefit in us being purposeful and intentional, but not just kind of running to get to a number. We're actually running to trying to get to an outcome, so we need to be looking at those outcomes.

Coronado: One of the topics of conversation, one of the themes of this conference...we had two panels on it today...how does the balance sheet policy fit into this? You pulled that forward, you're doing them simultaneously, you're ramping up faster, running off faster. How do you judge the role that plays? How does that influence your estimate of the neutral rate, or where you need to get to?

Bostic: I think the panel earlier said this well, in the sense that there's a lot of unknown as to how the marketplace is going to respond to this in terms of are bank institutions going to deploy their capital, how is the reduction liquidity going to affect just basic market functioning, and some of the signaling issues around this motion as well.

I actually think this is an important thing to do. I see it as a removal of accommodation, for sure, but we're going to have to just see how much financial markets take this on board, and also how and whether consumers do as well. It will be very interesting, I think, in the next several months as this gets further down the road, to see how housing markets in particular respond to this because that will be on the front line directly in a way that...the Treasury market is a little different that way. That'll really give, I think, some good clues as to how much efficacy, an extra push, that the balance sheet reduction is having.

The other thing I would just say is, it's time to reduce the balance sheet. I do think that we moved into the QE posture at the very beginning of the pandemic to send a strong signal that we were going to make sure that we did all that we could to minimize the damage that the pandemic was going to bring to our markets. We did that for a long time, and I think that was appropriate.

It's very interesting. I'm going to do a little side thing...I think it's important for people, as we talk about these things, for all of us to be very sensitive about the mindset that prevailed at the time we were making these decisions and how much uncertainty there was about what could happen. The forecasts were dire. The jobs weren't going to come back, we could be in a deep, deep, a long, extended recession.

For me, I'll say, my view was we need to get out there in front, say we're going to fight as hard as we can to make sure that those horrible projections didn't happen. My view was also let's not stop. If we're going to stop, I want to make sure we don't stop too soon, so that there's a risk that we fall back to get that anyway. For me, I was very comfortable going longer than possible. The debate about exactly when this should happen...that's a hard debate in real time, when things are happening that we couldn't have predicted.

Coronado: Although last year, you were on the early side saying maybe we should end QE earlier than we planned.

Bostic: Yes, I was, but I love our committee. It's a group of people who come together with an earnest approach to it. They're very analytical. We live in different places, which gives us a different narrative about how the economy works out, and then we bring our ideas into the room and talk about it. The consensus that emerges from that conversation is where the committee goes. I think it's really healthy to have the range of viewpoints expressed, and that people understand that it actually is a conversation and a debate that we're having.

For me, it actually benefits me a lot, because then I go out and talk to people and they're like, "You don't say exactly the same thing that everybody else says, so maybe the information I'm giving you can inform your policy in a really interesting and useful way."

One of the things that has been really gratifying for me in this role is that, people tell me the truth. They tell me exactly what they're thinking, and that is the best of all possible worlds because then I actually have a hope of really knowing what's happening so then we can make sure that our policy debate is with as much information as possible.

Coronado: Along those lines, Lisa Cook was just confirmed as the first black woman ever to sit on the FOMC. So, you have a new colleague. [applause]

Bostic: That is fantastic news. You know, Lisa was a student of mine; I was a TA for her...we'll just say, a long time ago. [laughter] I won't call out numbers. She's a fantastic economist, and she'll bring a really welcome voice to the committee. I'm very, very thrilled. So, thank you for that.

Coronado: Yes, great news. I got the news on Pigeonhole. Before I let you go on the balance sheet, you're describing an approach where you're kind of feeling your way, that the channels aren't well-defined, nor is there an integration in terms of thinking about how these two things are working coincidentally.

Bostic: We're going to learn on these things. I will say, I think we need to reduce the balance sheet. I think the evidence, if you look at what's happening in the ON RRP markets, there is excess liquidity in the marketplace. I'm not sure that we should be continuing to provide that. The goal should be to pull back and let the economy—as many parts of the economy as possible; they say all of them—stand on their own and function the way they're supposed to function, and we go back to the background. That needs to be the goal.

I think that steady removal of that accommodation of our position is fully needed and necessary. Then the challenge we have is that these markets haven't been as well studied and deeply studied as before, so that the thresholds that could lead to problems are not as clear. As we go through this journey, we're going to have to watch and be careful, particularly as we start to see the signs that some of the things we're doing may potentially start to bind. I don't think we're close to that right now.

Coronado: You haven't even started.

Bostic: I guess that's true. [laughter] We have to start to get there. My hope is that we're going to see, in these first couple of months at our introductory level, that the markets can absorb this and manage well, so that then we can move at pace to try to get closer to the position that we're supposed to be at.

Coronado: One of the discussions and debates on an earlier panel was around, you've set out an initial plan for phasing in these caps, rolling down the balance sheet roughly a trillion a year. At some point in the future, you'll phase that down. There was a discussion around sales of mortgages. There are some principles of the balance sheet, one of them is to be mostly Treasuries. Given where rates are, you're probably not going to be rolling down those mortgages very fast. So, do you think you should be considering mortgage sales down the road?

Bostic: Absolutely. For me, everything is on the table all the time, and it's just a question of, "When is it appropriate to deploy various approaches?" We are very heavily positioned in mortgage markets, and the principles are exactly the same in terms of ultimately, we should be getting to the background as much as possible and not really be driving the liquidity position of that marketplace. It is going to be a challenge.

We need to do that, but I also think, and the panel actually covered this very well, there are logistical challenges that we face to sell these securities. You've got to mark to market, you've got to rebundle, you've got to do all these sorts of things. That's an apparatus that we're going to have to build up. This isn't something that you can just jump into at a moment's notice, so that's one thing.

The second thing is, we're going to see how the mortgage markets respond. Once we start to see those things, I think that will give us some sense of when it will be appropriate to start to explore that more deeply. I'm very, very much in favor of us doing sales, but that's probably not the first thing to do. Let's get this underway, and have people understand how markets are responding to it, and then we can start to add that piece to the mix.

Coronado: Okay, so, it's not high priority right now. Proceed with the plan, proceed with the rate hikes. Your sense of neutral: do you have a comfort zone, in terms of where you think the neutral interest rate, short-term interest rate, might be?

Bostic: Yes, somewhere between 2 and 2.5, I think. All of these are estimates. These are estimated values, so I think we're going to have lived experience which will tell us when we actually get there. We're just going to have to be open to that.

I can tell you, we're not close to there now, and that's the information that I think will help guide how I think about where policy should go. We've got to get in that range, and then once we get there then we can see where the economy is, we can see how some of these supply side forces have evolved, we can see what's happening on demand. That mix, I think, will inform if and how much we have to go beyond neutral to try to curb inflation.

Coronado: You had cited, at the beginning of our conversation, the tightening we've seen in financial conditions, which is anticipating a whole sequence of those. How do you map that? What are the key metrics you use for mapping that into your expectations, or is it something that you see but you actually need to see the economic data confirm some of that tightening? How do you balance that leading indicator versus the data that you gather?

Bostic: Yes. So, you're asking a very hard question.

Coronado: Yes, I am.

Bostic: On some level, this is the art of policy; right? You have the financial markets, and they're signaling what they think is happening in the marketplace. We have the aggregate data that comes out on a monthly or quarterly basis. We also have our regional network that we get information from, and the surveys that we get information from. The craft for us is really to sort all that out. Actually, not to sort it all out, [but] combine it all together, mix it up, and figure out what's really happening. And what's really happening has got to be where we were, in some instances last week, where we are now, and what the implications are for where we're going to be two weeks or three weeks from now, because the world has been changing so rapidly and along so many dimensions.

That's the art. That is the art. For me, the way we do our briefing preparation is that I have macro people, I have finance people, I've got labor market people, all in the room, and they're all telling me their thing. We get all the financial market signals, we get all the real economy signals, we get the anecdotes on the ground. We'll just say it's a lively debate that we have as we work through a number of these issues. We try to take it on board. I actually think we're going to be in a good place, and I think we're positioned to have our policies adjust and adapt in a way that can get us to where we need to get to.

Coronado: A soft landing. Or softish. What does "softish" mean? [laughter]

Bostic: Yes, there's a lot of debate about that. You'll notice, I've carefully tried to stay away from that phrase so that that question didn't come up. [laughter]

Coronado: Do you have a swear jar for "softish?"

Bostic: Look, I think that we're going to try to engineer the reduction in inflation while minimizing the amount of pain and damage that happens on the employment side. That's what we're going to try to do. Because there are so many other moving parts, how much we're actually going to have to do isn't clear today.

Coronado: So you're saying the Phillips curve isn't the perfect guide? Is that what you're saying?

Bostic: There's no one curve that is the perfect guide. It's been very interesting. We have this debate in the building as well about what are the things we should look at. Right at the beginning of the pandemic, just before the pandemic, we were starting to have a lot of conversations around inflation and "how do you measure it?" A recognition that different measures of inflation were actually sending different signals about how close we were to meeting our targets.

That was one of the reasons we started posting our Underlying Inflation Dashboard, which I hope all of you guys are following, but what was true at the beginning was that the different measures were actually saying different things about where we were. Today, that's not true, so on some level that value is less important right now. As we start to make progress on this inflation journey, it is entirely possible that different measures are going to be moving at different paces and that we'll have to sort all this out to really understand what's going on.

The Phillips curve, I don't think is dead. I thought that Manoj [Pradhan], your presentation this morning about China's role in shaping how the US and the global Phillips curve operate... that's very interesting and it's something I think we should all think about in terms of, what are the underlying dynamics, and then what are the things that might modify those or cause those to not reveal as strongly in certain circumstances? Actually, it's very thought provoking.

Coronado: I want to move on from monetary policy, and just touch on a couple of things that we talked about in this conference. One is central bank digital currency. We had a panel and a lively discussion on this topic. There is a wide range of perspectives the Fed is actively gathering in opinions and feedback. There's the "why do we need this?" perspective. There's a "this is a moment, an existential moment" perspective, that you need to modernize the monetary system. Where do you come out on central bank digital currency, or do you know yet?

Bostic: I don't know. What I would say is, it's more complex than a lot of the conversation acknowledges. There are decisions that are going to be made on the road to doing this, if you wind up doing this, that will have implications for a broad set of things that I don't think have gotten as much conversation. The thought about does the existence of a central bank digital currency effectively disintermediate banks. That is a major baseline question, which, if the answer is yes, poses a real challenge to us because our policies operate largely through the banking system. That's a major transition mechanism, so if doing this undermines our ability to do monetary policy, that's a problem. Thoughts about if we're going to have a currency out there, how do we track it to make sure that the money supply is managed? If you're going to track it, we now have the ability to track where consumers deploy this money, every dollar that's out there. So, there are implications for information, for privacy, for all those sorts of things...

Coronado: Cybersecurity.

Bostic: Cybersecurity, all these issues, and for a number of them we don't actually have the authority to decide. We don't get to set privacy policy, so there are others that are going to have to be in this conversation. David could say a lot about this...

Coronado: Oh, he did!

Bostic: He did, but for me, I've not been in a lot of rooms where all the players have been there to start to figure out how we're going to sort these things out. I think that's the next step. I'm actually very curious about what the responses are going to be to our requests for questions, because that will give a real sense about where the industry is.

I probably shouldn't say this, but I'm going to say this anyway. I'm more interested in what the non-advocates write about and comment on than the advocates. I kind of know where they're going to be, but it's where everyone else is because if we're going to do this there are going to be a lot of other folks who are going to have roles to play. We need to understand where they are and where they think the challenges are, and where they think there are opportunities for being better. I don't really have any...

Coronado: That implies maybe a different type of information gathering, right? More proactive. Not just "give us your comments," but "let's go out and seek all the stakeholders' input that might be in..."

Bostic: Yes, that's exactly right. I would expect...all right, I probably shouldn't say this either, but I'm going to say it. I would expect that there's going to be a lot of learning that comes out of the responses to these, and there will be a set of streams of work where we start to go out and do that engagement, because there are going to be technical issues that we're going to have to understand and then incorporate into any strategy or approach that we might choose to pursue. The only way we're going to do that, is by going out and finding out what people know.

Coronado: We're almost out of time, but I wanted to also talk about something that doesn't get as much focus but I know you're involved in, and that is the reform or rewriting of the Community Reinvestment Act. Can you tell people what's going on there?

Bostic: Yes, this is something that's been a long time coming. The CRA is a law that actually empowers us as the Fed to monitor and encourage bank institutions to deploy capital and invest in their full range of customers, and in the full range of neighborhoods that are in their service areas. It was set up in 1979, and it really hasn't been updated for probably 20 or 25 years, and the world has changed a lot. Banking has changed a lot; banking institutions have changed a lot. I still go to bank branches, but I'm old school.

Coronado: That's so sweet.

Bostic: I'm old school; but most...

Coronado: Do you deposit paper checks? [laughter]

Bostic: No comment. The world has changed. You have internet banks. You have banks that don't have any locations. The old reg was really tied to the branch, and all of the assessments about what made sense were tied to physical locations. So much of banking today just doesn't have any physical location, so the law is not really, and the regs are not really, tailored in ways that will allow the maximum attention to be given to all of the neighborhoods that we think should be getting attention.

I think that the proposed revision is an upgrade, and I'll say two things. My hope is one, by bringing in the institutions that are not in the old regulatory framework, it will make sure that the full range of banking institutions is thinking about the full range of their customers and trying to work hard on that. The second thing is the new reg, I think, is going to be clearer for institutions about what kind of activities actually count. One of the things I've heard a lot is, banks don't always know, "well, if I give to this community group, or if I give to this function, or if I invest in affordable housing or an after-school program, does that count or not?"

For me, I think that it's good that we're more transparent on this, but also clear that a good investment can be in a wider range of activities. For most of my career, I've worked in economic development. One thing that's clear is that many communities aren't really ready to get a $20 million loan. They wouldn't be positioned, they don't have the institutions in place, they don't have those things. If you want to ultimately get to them getting a $20 million loan, you have to do the work to get those other pieces of the institution together. That should be part and parcel of how we think about these things.

It's a very good development. The third thing I would just say on this, is that it's a unified approach. The three main regulatory agencies put this out together. That was not where we were two years ago, and I think it'll be better for everyone to have one set of rules that everyone understands rather than having this set of institutions working on one set, and these on another one, and they don't always say the same thing. That adds a lot of complication.

Coronado: Yes. Well, that's great work. I look forward to hearing the updates and seeing how that gets implemented.

Bostic: It's very exciting.

Coronado: Yes. All right. I think we should all go eat now. Thank you so much.