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New Cleveland Fed President Loretta Mester talks about Ohio jobs, security … – The Plain Dealer


Loretta Mester became president/ CEO of the Cleveland Federal Reserve Bank in June. 

CLEVELAND, Ohio — If you’re concerned about getting a job or keeping your job, or if you worry that inflation in the years ahead could hurt your wallet, you should take interest in the new president of the Federal Reserve Bank of Cleveland.

Likewise, if you want mortgage and credit card rates to stay low or if you can’t wait until CDs are worth having again, or if you wish something more would be done about all of these boarded-up homes across the region, then the work done by Loretta Mester in the years ahead will affect you.

Mester, 55, became the new president and CEO of the Cleveland Fed three months ago, succeeding Sandra Pianalto, who retired after 11 years in the top post. Mester previously worked for the Philadelphia Fed, for nearly 30 years, starting as an economist and climbing to executive vice president and director of research. As CEO here, she oversees 950 employees in Cleveland, Cincinnati and Pittsburgh who conduct research about the economy, supervise banks and provide payment services to banks and the U.S. government. 

Charles Plosser, president and CEO of the Philadelphia Federal Reserve Bank, worked with Mester for eight years, said in an interview that her appointment is huge for Greater Cleveland and the entire region.

“I think they’ve got a gem on their hands and they should feel very fortunate,” Plosser said. He called Mester “a talented and insightful economist” who is “very wise about the system and the challenges the Fed faces.” He added that she’s “an incredibly hard worker . . . I’ve never seen anyone work as hard as her.”

A Baltimore native, Mester is the middle of three children; her father was a research physicist and her mother was a homemaker. They stressed education; Mester’s brother is a physicist and her sister an associate dean at a university.

Mester’s husband, George Mailath, is also an economist and is a professor at the University of Pennsylvania. He comes to Cleveland on weekends and she works in trips to Philadelphia while traveling to Washington, D.C., for Federal Reserve meetings.

Mester, who now calls the Warehouse District in Cleveland home, said in an interview Wednesday she’s been most surprised about two things here.

First: “The people here are extremely nice. This whole thing about Midwesterners being nice, it’s really incredible. I was at a restaurant (in the Warehouse District), my husband and I were there and the waitress took our order and came back and actually sat down at the booth with us, just invited herself to sit down at the booth … She was going to Oxford (University) and she heard what we were talking about, so she wanted to talk to us about economics. That was kind of fun.”

Second: Cleveland is more bustling than she realized in her two visits during the interview process. “There is more going on with the restaurant scene than I might have expected and there’s certainly a lot of downtown development. You can see all of the construction going on. I guess I didn’t expect it. That’s a pleasant surprise. You like to be in a place that’s coming back with stuff going on.”

One bad surprise: Midges — the large mosquito-like insects that take over many lakefront neighborhoods during the spring and fall. Even though they live only five to 10 days, they’re still annoying and a little disturbing. “I had never heard of them,” Mester said, although she does remember hearing about some bugs attacking New York Yankees relief pitcher Joba Chamberlin during a 2007 playoff game. Those were midges.

In her first major interview, Mester said she has embraced Greater Cleveland and the bank’s Fourth District, which covers Ohio, western Pennsylvania, the northern panhandle of West Virginia and eastern Kentucky.

“I find the economy very similar to the economy in the Third District where I came from,” she said. “The Philadelphia district is very similar in terms of having a manufacturing base for a long, long time and having to do the transition to a more “eds and meds” kind of economy (education and medicine). That’s kind of how I view the Northern Ohio area. It’s basically having to do the transition from a very manufacturing intensive (economy) to a service/high-skilled manufacturing/eds/meds. I think that’s very interesting, being able to do that transition.”

Before the questions started, Mester offered that she had read a past interview this writer did with Pianalto about whether everyone should go to college. Mester wanted to weigh-in before being asked.

“I think there is a wage premium for going to college,” she said.

“Certainly, we all want to encourage an education, but does it have to be college? Probably not,” she said. “There are a lot more avenues for education now than there used to be. And when you talk to business contacts, a lot of them say they’re having trouble finding skilled workers, and a lot of the skills (they need) are not necessarily skills you’d get in college.” 

She noted that many skilled manufacturing jobs pay well. “How do you get that kind of training? This is one area where I think Europe might have it better than us, in the sense that, in Germany, there’s an apprenticeship program. You could be a journeyman and work your way up. We’ve not really emphasized that in this country,” she said. “So there are lots of ways of being educated. i think the main thing is education. You need to have skills and you can get skills in various ways.”

Here’s what Mester had to say on a range of other topics during the one-hour interview:

Interest rates haven’t moved in six years. You’ve been quoted as saying you thought the Fed in the past had sometimes raised interest rates too slowly. Are you concerned about that this time?

“I think there’s good evidence that basically says we typically are slow to raise rates. Then what happens if you’re too slow, you get behind and then you have to have a steeper path,” she said. But she’s not yet worried that’s happening this time around.

“At this point, now, there is still more progress we need to make (before we raise rates),” she said. “I do believe it’s appropriate to keep interest rates at the zero to 0.25 percent range. But I also think it’s prudent planning to be prepared to move rates” because the economy could heat up quickly. “If things start moving faster than we anticipate, then I want to be prepared to raise rates.”

For older folks who’ve traditionally relied on CDs and savings accounts for interest income, they’ve been getting crushed by low rates for all of these years. What words of encouragement or comfort do you have?

“I don’t know whether this is comforting, but I do believe that the Fed needed to take the actions that it did (to cut rates) given the depth of the financial problems that we were facing. I think we’re better off that we did this than if we hadn’t. If the economy hadn’t come back, I think everyone would have been in a worse place, including the savers.

“Monetary policy always has distributional impacts. You’re right, it’s extraordinary policy. Those (impacts) have been more amplified this time. We’ve been at zero for a long time. But the hope is the economy gets back to our goals faster because we’ve taken these actions. And this is going to help everyone,” she said. “I don’t know whether that’s going to be comforting to the people who are earning so little on their savings. But the policies were taken to make sure the economy comes back.”

Many people don’t understand exactly what the Fed does. How do you explain why your job and the Cleveland Fed are important to everyday people here?

Foremost, the Fed has two main goals, Mester said. Achieving maximum employment and making sure prices are stable. If as many people as possible who want jobs actually have jobs, that’s good for their lives and for the community, she said.  “Ultimately, we work for the public. We are public servants. And we care about the district, learning from people in the district, how their businesses are doing, what their concerns are.”

About Loretta Mester

* Became president/CEO of Cleveland Fed in June.
* Native of Baltimore.
* Worked for Philadelphia Fed for 29 years.
* Married to Dr. George Mailath, professor of Economics at the University of Pennsylvania.
* Interests include playing the piano, the opera and fitness rowing.
* Enjoys reading mysteries. Currently reading: “Orpheus in the Marketplace: Jacopo Peri and the economy of Late Renaissance Florence”.
* Favorite TV shows: The Castle, Daily Show and the Colbert Report.
* Board affiliations include the economics advisory council of Drexel University’s LeBow College of Business, and the finance department advisory council of Temple University’s Fox School of Business and Management. She is also founding member and director of the Financial Intermediation Research Society, a practitioner director of the Financial Management Association International, a member of the advisory board of the Financial Intermediation Network of European Studies (FINEST), and a member of the advisory committee of the Financial Engineering and Banking Society.

Second, people’s wallets are certainly impacted by whether prices are stable. “This affects their everyday lives,” she said. “We don’t want prices to be going up so high that they go into the grocery store and then think, ‘I’d better buy everything today because tomorrow the price is going to be much higher.’

“Price stability is very important for the economy, and I think it’s important in people’s lives.”

The Fed is also relevant every day because the Fed helps make sure banks are sound, Mester explained, so that consumers know the money they have in a checking or savings account is safe.

What are other key roles for the Cleveland Fed?

Mester highlighted community development. “I think the community development work we’re doing is very important.”

“I had a nice tour of Slavic Village, which was fascinating. We got to go into some of the rehabbed houses and see how they’ve been able to finance them and get people in them. That’s really important.

“What the Federal Reserve is very good at doing is sort of bringing together all of these constituencies that can affect an area,” she said. The Fed is also good at research and documenting the results of some of the community development programs — what works and what doesn’t, she said.

The Cleveland Fed also continues to work on financial literacy programs that try to help people learn about mortgages and credit cards and managing debt, Mester said. The Fed is trying to measure the impact of various programs, she added. “The Fed does impact Main Street people.”

You mentioned Slavic Village. What can be done in some of these communities that still have so many boarded-up properties?

“There is some work in land banks going on, which i think is productive. My understanding is that it actually works. There are pockets of policies that are actually working … There have been some efforts in trying to limit the supply of foreclosed houses.”

Another issue, she said, is how long it takes in some states to move properties through the foreclosure process. New Jersey, which she was familiar with, was one logjam state. Ohio is another. The process needs improved “so that you don’t have these buildings in limbo.” Often times, developers want to move fast, she said, but run into all sorts of road blocks.

The Cleveland Fed can and will study these issues, look at what policies are working and publish papers about what should happen, she said. “That’s how we can influence the debate. A lot of what we can do is get the right people in the room to talk about these issues from all different perspectives. You can’t have a solution unless you get all of the right parties in the same place, and then publishing very sound analytical work in these areas. I think that is what our role should be.”

You mention research here, and you were the director of research in Philadelphia. What kinds of research will the Cleveland Fed focus on?

“We’re going to focus on things where we’ve already established a niche,” she said. “Our ‘inflation central’ is an area the Cleveland Fed has been known for for a long time. It’s produced very good work, very good measures of inflation that are used nationally and internationally in gauging inflation. That’s an area where we’re going to try to focus.”
 
The Cleveland Fed also has an expertise because this district probably has more mid-sized, regional banks than any other district. Other areas of interest: Household finance, community development and payments.

On the topic of payments, you oversaw the payment cards office in Philadelphia. With all of the security breaches we’re having, at huge retailers like Target and Home Depot, do you think this will affect people’s use of credit and debit cards in the future?

“It’s certainly something that’s a concern. This whole thing, are your payments secure? … It’s something we take very seriously. In particular, the Fed’s focus is on fraud. We want to make sure there’s no fraud in the system. But I think cyber security in general is a challenge for the country. What kinds of things can be done to protect data? I think that’s a challenge for all companies.” Technology is great, she said, because it provides efficiencies, but with that comes the opportunity to penetrate weaknesses in security.

She’s not sure whether she believes the retail breaches will push people away from plastic.

“The convenience of using a credit card or a debit card over cash is pretty high. My personal view is it may have a short-term impact or small impact, but I think we’re all much more electronically geared,” she said. “At the Fed, we’ve been thinking about how can we make payments faster at the same time, secure. It goes hand in hand. It’s hard for me to believe we’re going to go back to a cash-based economy.”

Clearly, these retail breaches are not OK, with Jimmy John’s becoming the latest target we know of. What needs to happen to fix this?

“The current environment for addressing payment security is complex — there are many different parties working to improve technology, standards and protocols. One of the Federal Reserve’s top priorities is to improve industry coordination on these fronts. We think a collaborative approach will be key to the success of these efforts.”

But Mester said she understands that some people are frustrated that stores and banks haven’t invested more in preventing fraud and instead are willing to eat losses when they occur. She said she welcomes changes like chip-and-PIN cards and other new technology, such as mobile payments, that should help stop some of the fraud.

What do you want people here to know about you and your leadership style?

“I want to lead by example. I want people here to feel they can make decisions, take ownership for their work,” she said. “I want people to think of new ways of doing things.

“I’m really ambitious for the Cleveland Fed. I really think we can make an impact in the region and an impact in the nation and even internationally with our thought leadership. We work for the public, and I take that public service aspect of the job very seriously. I know the staff does here, as well. I just want to inspire that.”

Article source: http://www.cleveland.com/business/index.ssf/2014/09/new_cleveland_fed_president_lo.html

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