Interview with Jeffrey Fuhrer, Executive Vice President, Federal Reserve Bank of Boston

My big question to Jeffrey Fuhrer was “What makes you optimistic about our economic outlook in the long run?” I’m glad he is, since he’s the Executive Vice President and Senior Policy Adviser for the Federal Reserve Bank of Boston.

But so much of the news we read about, now and over the past number of years, results in economic volatility. The stock market yo-yo’s, we’ve had significant inflation, there are numerous and constant global crises, we have this controversial national election process going on, our Congressional members are not doing much of a job collaborating with each other, problems of great magnitude go on and on.

 What does Jeff see that we don’t? He talks about how our economy has mobilized over this long difficult period, currently and looking towards the future. “There are all kinds of things going on around the world and inside the country that would make you think it’s completely chaotic. It’s important to step back a little bit and think about some of the broader indicators of where we were and where we’ve come.”

“The most important one is that in the middle of the recession, 10% of our workforce was unemployed. That’s a bad, bad circumstance, and it could have been much worse than it was. Over the past several years of the recovery, which has been slow, that unemployment rate has come down to 5%. In addition to that, people who had been on the margins of the labor force have come back into the labor force. And the number of people working part time has declined, too. That’s quite significant, because we think the labor force is probably the most important overall aspect of the economy. Everything else ultimately comes from us. That improvement suggests we’ve come a long way, not just relative to where we were, but in an absolute sense. We’re now very close to what most economists think of as full employment. I don’t think we’re quite there yet, but we’re close enough that it makes sense to move from real emergency policies towards policies that are more normal. The emphasis at the Fed is towards very gradual movement to normal. These are baby steps that over the course of years will get us back to a normal state. The economy has some semblance of normality despite the craziness going on all around us.”

Is the Fed working in new ways, as a result of our economic distress? Jeff says “On behalf of the Fed, during this extraordinary crisis, normal tools were not sufficient. We moved interest rates to 0, they can’t really go any further, and the economy was still weak. So, what do you do? Our former and current Chairs both deserve credit for thinking quickly and flexibly about what kinds of things we might do, to support the economy, that we had not done before. We needed to support ordinary households using tools that we had to make up as we went along. That was real-time innovation. It required flexibility and input from lots of different people who were thinking of how to do this. We had to do some things where we really didn’t know how they would work. In a few cases, they didn’t get results, so we dropped them. Other programs had immediate take-up and normalized markets quite quickly. From a macro-economic perspective, we put in place tools to add further stimulus to the economy. Those didn’t solve everything. We would have liked them to be more potent, but we did everything we could. At least we got to where we are today, over time and gradually. The idea of being flexible and open to new ideas works, and I hope it doesn’t require a crisis, but certainly in this case it was a crisis.”

What does the Fed control? Most circumstances are not within the Fed’s control, globally and in our own government, and the Fed cannot influence them without risking their independence. They monitor and figure out, given the tools they do have, how to keep the economy on a reasonably stable footing as best they can. The Fed cannot lobby Congress, they can only present their best understanding from the economics profession. They generally stay away even from that, because they are not a politically motivated organization. In fact, among institutions within the Washington DC beltway, they are one of the least political. Jeff comments “That’s a very good thing for the country. When you look at other countries where the central bank is political, they get into trouble terribly quickly.”

 One of the things the Federal Reserve does control is interest rates. Jeff explains why raising them is a good idea. “The only reason we would ever raise interest rates is because the economy is growing and performing at a rate consistent with somewhat higher interest rates and rates of return. If the economy were not ready for this, we wouldn’t do it.” “Another factor is that we have a large population of people who have fixed incomes, who rely on interest from their savings accounts. They have suffered through a seven year period, and asked us all the way through to raise interest. The answer is if we had done that, we would have thrown more people out of work, and the economy would have gotten weaker. We would have taken a longer time to get to the point where the economy was producing nice rates of return on interest bearing assets and also the stock market. So, it’s good for all of those people when rates gradually begin to rise, and they’ll have a better income.”

“Over a period of several years, the economy will truly be at full employment, and we’ll be at a neutral position, neither stimulating nor contracting the economy. We’ll be in a place where we can grow indefinitely, barring further catastrophes.” We all look forward to that time!


  1. Great interview Susan . Thank you for asking about what has worked , what is good and and what could be instead of the normal deficit based bias so prevalent in our culture. I particularly liked your question about <<
    My big question to Jeffrey Fuhrer was “What makes you optimistic about our economic outlook in the long run?”>> and your question <>. In order to see new possibilities, we must see the world through new lenses. In order to seize those new possibilities we must support the design and emergence of new ways of working.

    1. Bernard, thanks so much for your comment. Jeffrey believes strongly in the value of seeing new possibilities. I think he'd be a great ACE speaker, and I'll check with him to see if he might be willing to do that.

  2. Any chance he might be a keynote speaker at ACE?

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