Federal Reserve officials typically gather many of their insights and observations about the economy from some of the top Ph.D. economists in Washington.
On a visit Monday to York, Pennsylvania, Chair Jerome Powell got an earful from a group with a decidedly different perspective: Small-business people who are grappling personally with inflation, high interest rates, labor shortages and other challenges of the post-pandemic economy.
Powell, along with Patrick Harker, head of the Federal Reserve Bank of Philadelphia, traveled to York to learn about the efforts of the long-time manufacturing hub, where York Peppermint Patties were once made, to diversify its economy.
The businesspeople they spoke with were generally optimistic but expressed a range of concerns: They are still having trouble finding all the workers they need. Higher interest rates have discouraged some of them from expanding. And higher costs and a chronic difficulty in acquiring enough supplies have persisted.
“We were a little blind-sided by inflation,” said Julie Flinchbaugh Keene, co-owner of Flinchbaugh's Orchard & Farm Market. Since the pandemic struck more than three years ago, she said, “predictability is just gone. It's very hard to operate a business without predictability.”
Keene noted that her parents had experienced high inflation when they ran the business back in the 1980s. But the company was much smaller then and had no employees. As a result, her father said, “I don't have any wisdom to give you.”
“We'll get inflation down," Powell said after listening to her concerns.
Powell's visit occurred as the Fed is monitoring the economy for signs that its streak of rate increases are having their desired effect and that inflation is continuing to cool. At their most recent meeting two weeks ago, Fed officials signaled confidence about a so-called “soft landing," in which inflation would fall back to their 2% target without a deep recession. The policymakers predicted that inflation would fall to about 2.6% by the end of 2024, with only a small rise in the unemployment rate.
But given its confidence in the economy's resilience, the Fed also signaled that it expects to keep its benchmark rate higher for longer, potentially raising it once more this year and keeping it above 5% well into 2024.
Inflation has dwindled from a four-decade high of 9.1% in June 2022 to 3.7% in August. In the meantime, the unemployment rate has defied predictions by remaining low while the economy has continued to expand.
“What we all desire," Powell said, “is a sustained period of strong labor market conditions,” which can boost wages for the lowest-income workers. "To have that, though, we need price stability.”
