Speech

The Fed’s Role in Community Development RaysofHope:ANewDayforAmerica’sDistressedUrbanAreasConference Co-sponsoredbytheCommunityAffairsDepartmentoftheFederalReserveBankofSt.Louis andtheUniversityofIllinoisEastSt.LouisActionResearchProject JackieJoyner-KerseeCenter EastSt.Louis,Illinois October23,2002 The conference proceedings yesterday andsmall,workintheirneighborhoodstoprovide made clear that there are a number of jobtraining,creditcounseling,andsmallbusiness individuals, organizations, and govern- loans. ment agencies working hard to find TheFederalReservealsoplaysarolethrough solutions to the problems facing cities through- itscommunityaffairsoffices.Thecommunity out our country. And they are as varied as the affairsstaffprovidesleadershipandinformation citizens and neighborhoods they serve. onsuccessfulapproachestocommunitydevelop- WhatIwanttodoistotalkforjustafewmin- ment.Inthatrole,theFederalReserveBankof utesabouttheappropriateFederalReserverole. St.Louisispleasedtosponsorthisconferencein Butbeforeproceeding,Iwanttoemphasizethat EastSt.Louis.Theattendeesheretoday—from theviewsIexpressherearemineanddonot banks,community-basedorganizations,govern- necessarilyreflectofficialpositionsoftheFederal mentagencies,universities,andothers—arerep- ReserveSystem.Ithankmycolleaguesatthe resentativeofthemanypartnerstheSt.Louis FederalReserveBankofSt.Louisfortheircom- Fed’scommunityaffairsstaffworkswithdaily. ments,butIretainfullresponsibilityforerrors. Butaquestionoftenarises—whydoesn’tthe Oneoftheorganizationsworkingtoaddress FederalReservealsousemonetarypolicytohelp urbanproblemsistheEastSt.LouisAction neighborhoodsinlocationssuchasEastSt.Louis ResearchProject,orESLARP,ourpartnerinspon- andurbanareasacrossthecountry?Afterall, soringthisconference.Otherparticipantsinthis monetarypolicyisoneofthemostpowerful effortarefacultyandstudentsfromtheUniversity forcesintheeconomy. ofIllinoisatUrbana–Champaignwhocollaborate AlmosteveryoneknowsthattheFedinflu- withEastSt.Louisneighborhoodgroupsonproj- encesdemandforgoodsandservicesintheecon- ectsthataddresstheimmediateandlong-term omybymanagingshort-terminterestrates.Interest needsofsomeofthecity’smostdistressedcom- ratesaffectpeople’sdecisionsaboutconsuming munities.Communityresidentsidentifyandprior- orsavingandfirms’decisionsaboutexpanding itizetaskstobeworkedon.Individualsfromthe productionorlayingpeopleoff.Monetarypolicy campuslearnfromcommunityresidentsand,in canhelplifttheeconomyoutofrecession,andit exchange,workonprojectsthatenhanceandbuild canbeusedtokeepinflationlowsothatthecoun- thecommunity. trycanachieveitsmaximumsustainablerateof Therearenumerousnonprofithousing economicgrowthandemployment. developers,likeBeyondHousinginSt.Louis, Why,then,doesn’ttheFederalReserveflex whichprovideaffordablerentalhousingorhome- itsmonetarypolicymuscleinneighborhoodsall ownershipopportunities.Inaddition,thousands acrosstheUnitedStatesthatneedaneconomic ofcommunitydevelopmentcorporations,large boost? 1 MISCELLANEOUS Interestingly,thefoundersoftheFederal economyisbooming,someregionsandindustries ReserveestablishedastructurefortheSystem areleftbehind;whentheoveralleconomyisin thatassumedthateachFederalReserveBank recession,someregionsandindustriesarenever- couldsetitsowndiscountrateappropriatefor thelessdoingquitewell.Today,forexample,the theneedsofitsregion.Butevenin1914,when overalleconomyisgrowingmodestly,recovering theSystemcommencedoperation,thisviewwas alltooslowlyfromlastyear’srecession.Economic outmoded.TheU.S.financialmarketswerewell conditionsvarysubstantiallyacrossregionsand integratedbythattime,andpowerfulmarket industries;thehousingindustry,forexample,is forcesequalizedinterestratesacrossthecountry. extremelystrongatpresentbuttheairlineindustry ATreasurybond,forexample,hadthesameyield isinconsiderabletrouble.Industriesandregions inSt.LouisasinNewYork,thefinancialcapital alsovarygreatlyovertime.Manyhigh-techfirms ofthecountry. wentfromextremeboomthreeyearsagotoenor- Themarketforcesatworkthenandnoware mousdifficultytoday,includingevenbankruptcy. easytounderstand.Anyonewantingtobuya Itwouldbeeasytomultiplytheseexamples Treasurybondwillwanttobuyatthelowest manytimesoverinourrecentandnotsorecent possibleprice,andanyonewantingtosellwill history. wanttosellatthehighestpossibleprice.The TheU.S.systemoforganizinganddirecting willingnessandabilityofbuyersandsellersto economicactivityisamixedone,withhighly taketheirorderstothemarketwiththemost decentralizedandhighlycentralizedmechanisms favorablepricesbringsactualtransactionsprices existingsidebyside.Moreover,thedegreeof forTreasurysecuritiestoequalityinallmarkets, centralizationevolvesovertime,inresponseto exceptpossiblyforveryminordifferences. changingconditionsandchangingunderstanding Securitiesissuedbyprivateborrowers,or ofwhatworkswell.Thereisgeneralagreement, localgovernmentborrowers,willalsotendto afterthefailureofSoviet-styleeconomies,that tradeatidenticalpriceswherethesecurities extremecentralizationisaterriblemistake. haveidenticalcharacteristics.Thedimensions Perhapslesswellappreciatedbythegeneral ofthecharacteristicsincluderisk,maturity,tax publicistheadvantageofmaintainingthecurrent status,liquidity,andperhapsothers.Securities arrangementformanagingmonetarypolicy.The withamorefavorablemixofcharacteristicswill FederalReserveisaspecializedinstitution,with tendtotradeathigherprices,orequivalently, responsibilityformonetarypolicy,sharedrespon- loweryields,thansecuritieswithalessfavorable sibilitywithothergovernmentagenciesforbank mixofcharacteristics. supervisionandregulation,andsharedresponsi- TheFederalReserve,inadministering bilitywithprivatemarketcompetitorsforfinancial nationalmonetarypolicy,hasmuchtodowith servicessuchaselectronicfundstransferand determininginterestratesonTreasurysecurities checkprocessing. butnothingtodowithdeterminingthemixof Throughitsdiscountwindow,theFederal characteristicsofvariousothersecurities.Thus, Reservemakesfullycollateralizedloanstobanks, theFed’sjobistosetthetargetlevelofthefederal apowerthatisextremelyimportanttotheFed fundsinterestrate,whichinfluencesTreasury infulfillingitsresponsibilitiestomaintainfinan- rates,appropriatefortheneedsoftheeconomy cialstability.ButtheFeddoesnotmakeloansto asawhole.Itistheresponsibilityofprivateand others.Thisrestrictionontherangeofitslending governmentalissuerstodeterminetheirneeds activitiesisanimportantcomponentofasuccess- forfundsandhowbesttomaketheirsecurities fulmonetarypolicy.TheFederalReservecreates attractivetothemarket. money,whichisapowersubjecttogreatpoten- Astrikingfactofourdynamiceconomyis tialabusebecauseitcansoeasilyappearthatno thatthefortunesofparticularregionsandindus- onehastopaywhennewlycreatedmoneyisused triesarevastlydifferent.Evenwhentheoverall tofinancevariousgoodcauses.Infact,newly 2 TheFed’sRoleinCommunityDevelopment createdmoneyisthefunctionalequivalentof economicdevelopmenttools,programs,and revenueraisedthroughtaxation.Itisfarbetter strategies.Papersselectedforpresentation thatpublicfundsbeallocatedthroughthepoliti- duringthisthirdconferenceofferanevalua- calprocessthanthoughahiddenmechanism tionofcreditcounselingandfinancialliter- involvingthecentralbank. acy,CRA’simpact,sustainablecommunity Oureconomicsystem,then,displaysadivi- developmentpartnerships,housingdevel- sionoflaborinwhichtheFederalReserveis opment,publicpolicyinterventions,and assignedtheresponsibilityforoverallmonetary internationalapproachestocommunity policybutnotforfinancingparticularenterprises development. ororganizations.Individualentities,whetherfor- • SpecializedInformation profitornot-for-profitfirmsorgovernments,are 1)CommunityDevelopmentFinancing: financedthroughamixtureofmarket,charitable, Inadditiontocommunitydevelopment andtax-supportedmechanisms.Thisdivisionof financeworkshops,theFederalReserve laborhasworkedwellovertheyears;countries BankofSt.Louisrecentlypublishedaself- thatusedtohavecentralbanksheavilyinvolved studyversionoftheguidetocommunity inprovidingcredithaveforthemostpartmoved developmentfinancing:ComingUpwith awayfromsuchactivitiesasaconsequenceof theMoney:CommunityDevelopment adverseeffectsonoverallmonetarypolicyand Financing.Sofar,wehavereceivedrequests inadequatepoliticalcontrolovertheapplication forcopiesoftheguidefrom43statesand ofpublicfunds. fourothercountries.Onesessionthisafter- Whilemonetarypolicy,then,isthewrong noonwillbeaComingUpwiththeMoney toolfortheFedtousetotargettheproblemsin workshop,andparticipantswillreceivea particularsectorsoftheeconomy,whetherthose copyoftheguide.Conferenceattendees ofagriculturalregions,thecoalregionsof alsoarewelcometoorderafreecopyof Appalachiainanearlierera,orthoseoflower- thisself-studyguide. incomecommunitiestoday,theFeddoesnot 2)PerspectivesonCreditScoringandFair ignoreopportunitiestocontributewhereitcan. MortgageLending:SeveralFederalReserve TheFedplaysasignificantroleasenforcersand Banksworkedtogethertoproduceaseries promotersoftheCommunityReinvestmentAct ofarticlesinwhichindustry,concerned andrelatedfairlendinglaws.And,asmentioned groups,andindividualsaddressedissues earlier,thecommunityaffairsdepartmentsat surroundingcreditscoringanditspotential FederalReserveBanksacrossthecountrycon- impactonmortgageapplicants. tinuetoinform,educate,andassistbanksand communityorganizationsinareascriticalto • AQuarterlyNewsletter—Ourcommunity communityandeconomicdevelopment. affairsnewsletter,Bridges,ispublished Letmementionbrieflyseveralexamplesof quarterlytohighlighttimelyinformation Fedactivitiesinthisarea: andemergingissues,suchaspredatory lending,financialliteracy,andserving • AcademicResearchConferences—In immigrantpopulations. March2003,theFederalReserveSystem’s communityaffairsofficeswillsponsorits Forthemarketstowork,everyonehastohave thirdacademicresearchconferencein alloftheinformationfreeofbias.ThatiswhyI Washington,D.C.Theseconferencesbring believethatourroleasaproviderofessential togethereconomistsandscholarsfromthe information,througheffortssuchasthese,iscriti- FederalReserveSystem,collegesanduni- caltostrengtheningandexpandingthearrayof versities,andmajorresearchinstitutionsto toolstoprovideallcitizenswithbetteropportu- presentresearchoneffectivecommunity nitiesforjobs,housing,andwealthcreation. 3 MISCELLANEOUS Wethankyouforyourparticipationinthis LetmespeakdirectlytothosefromtheEast conference,andtrustyouwillfindtoday’ssessions St.Louiscommunity.TheFederalReservehas informative.Likeyesterday’sprogram,wehave aninstitutionalcommitmenttodowhatitcan. excellentpanelistsjoiningustodaytosharetheir ButIknowthataninstitutionalcommitment expertise. meansnothingwithoutpersonalcommitment.I wantthoseofyoufromthiscommunitytocome tous—tohelpusunderstandwhatwecandoto CONCLUDING REMARKS assistyouinyourwork.Itisoftensaidthatthe firstreasonpeopledon’treceivehelpisthatthey Iwillfinishwithafewhighlypersonal don’task.SoIaminvitingyoutoaskus—tellus remarks. whatinformationwecanprovide,whatresearch Everyoneinthisroomknowshowdifficult wecando.Telluswhowecanbringtogetherto theproblemsofdistressedareasare.Wearedeal- facilitatediscussionstoresolveproblems.Wehave ingwithcrime,substanceabuse,pooreducational novestedinterests;wearepoliticallyneutral. opportunities,andalonglistofotherissues.Our I’vebeenattheSt.LouisFedforalittleover conferencetitleishighlyappropriateforthesitu- fouryearsnow.I’vecometoknowpeopleatthe ation:Wecanseeraysofhope,butwedonotsee BankandtheBank’scultureofcommunityservice. thebrightsunshineofunbridledsuccess.AndI’ll TheEighthFederalReserveDistrictincludessome predictthatwewillbeengagedinaprocessof areasofverydeepdistress—urbanareas,major renewalfortheindefinitefuture.Wewillnotsee partsoftheMississippiDelta,andothers.Wewant ajobfinishedthatwecanthenwalkawayfrom. thoseofyouwhoareworkingtoaddressthe Itistooeasytobecomedisillusioned.We issuesoftheseareastocallonus—telluswhat knowthattheculturesofdistressedareasare wecandotohelp.TheFederalReservehasa dysfunctional.Peopleoftenengageinbehavior responsibility,butmoreimportant,eachofusas thatisself-destructiveanddestructivetoothers. citizenshasaresponsibility. Itisnoteasytochangebehavior;infact,allwe ContactcommunityaffairsattheBank,con- candoistohelppeoplerealizetheadvantages tactme.We’rehere—Don’tbebashfulabout ofchangingtheirownbehavior,andwecanhelp writing,calling,ore-mailingus. themtodosobyprovidinghope,improvededu- cation,andsteadysupport. 4

William Poole (2002, October 21). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_20021022_poole

@misc{wtfs_speech_20021022_poole,
  author = {William Poole},
  title = {Speech},
  year = {2002},
  month = {Oct},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_20021022_poole},
  note = {Retrieved via When the Fed Speaks corpus}
}