Sees Fed Continuing to Raise Interest Rates to Above 5%
New England’s highly skilled and educated workforce and the presence of leading health care, higher education and technology organizations here position the region well for the future, Federal Reserve Bank of Boston President Susan Collins said Thursday. But slowing population growth and labor challenges exacerbated by changes in the ways people work will mean that New England needs to bolster the economies of rural areas and small cities if it is to continue to thrive.
Collins spoke Thursday morning at a conference convened to consider how pandemic effects like the emergence of hybrid work and changes in where people live will impact housing, commuting and the overall economy in New England. She highlighted the work the Boston Fed has been doing through its Working Places Challenge to encourage economic resurgence in parts of New England that “have struggled to reimagine and rebuild their economies” after the decline of industries like manufacturing.
“If we are to move toward a more inclusive economy over time, the capacity for low-income places to adapt to economic change, which Working Places supports, is ever more important. This is particularly true in the context of the kinds of changes in housing and work we are discussing at today’s conference,” Collins said.
Through the program, the Fed supports a competition among cities and towns for grant money provided by states, the private sector and philanthropists to address a “shared goal for improving the economy that benefits low-income people. Thirty communities across five New England states have participated since 2014.
In Lawrence, she said, the team “provided job training and wraparound services for more than 600 parents, assisted 200 families with job placements — with an average wage increase of 25 percent — created new training pipelines with employers and the local community college, and integrated some long-term interventions into the school system, aimed at improving family well-being.”
Before the pandemic disrupted the school system, the Fed said, the Lawrence project that the Fed’s Working Places Challenge was part of made progress in math scores in younger grades, saw increases in English proficiency, and notched increases in the graduation rate. Collins said the program often leads to “substantial” private and government investment.
“For example, in Fitchburg, Massachusetts, work by the local team was a key factor in now more than $100 million in new investment downtown and in surrounding neighborhoods,” she said.
Addressing the current state of the national economy Thursday, Collins said she thinks the Fed will have to continue to raise interest rates to just above 5 percent and then hold them there for a while as it continues to try to wrestle inflation back down to its 2 percent target.
“The ongoing resilience in our economy — from many firms continuing to increase their payrolls, to business and household spending still holding up relatively well despite the uncertain economic environment — that resilience makes me reasonably optimistic that there is a pathway to reducing inflation without a significant economic downturn,” she said. –