Can the Federal Reserve Bank of Atlanta play development bank in West End Atlanta?

Mohamed El-Erian in his book, The Only Game in Town, shared this observation about the average person’s awareness of the importance of their country’s central bank.
“Most people spend little of any time thinking about how central banks impact them — not only in their daily lives but also in influencing (and even defining) the opportunities that their kids will have. Indeed, despite the substantial reach of these powerful institutions and the critical role they have played, there is still little societal recognition as to how much citizens have riding on their judgment, wisdom, and success — from protecting and enhancing their financial savings to securing credit and finding well-paying jobs.”

Staff at The Economist published an article describing the history of the world’s central banks, institutions that were first started to help raise funds for wars waged by monarchs and then taking on the additional tasks of helping to grow economies by stabilizing the prices of goods and currencies.

“Governments have asked central banks to pursue several goals at once: stabilizing currencies; fighting inflation; safeguarding the financial system; coordinating policy with other countries; and reviving economies.” — The Economist

But development bank, specifically development bank for poor communities within cities, is not listed as one of those goals. The Federal Reserve Bank of Atlanta has taken on a role of “information clearing house” for initiatives that emphasize development of low income communities. The Federal Reserve is not a development bank like the World Bank or the Inter-Development Bank, where these organizations provide direct investment into national projects aimed at economic or social development. Given the Federal Reserve’s stodgy and wonky characteristics, the central bank’s interest in issues that border on the social as well as economic is interesting. The Federal Reserve Bank of Atlanta’s president, Raphael Bostic, has acknowledged that economists are considering the more behavioral aspects of consumers in assessing the health of the economy.

That approach could play well in understanding areas like the West End section of Atlanta, an area that given current gentrification still has a significant low-income population. The area’s household median income is half of that of Atlanta’s with home prices ranging between $45,000 and $580,000. Although the population experienced a 13% drop since 2000, people have been moving back into the neighborhood as evidenced by a 5% increase in population since 2010. But the Federal Reserve’s acknowledgment of an income and employment problem may be offset by its recent policy of rate hikes.

Rate increases approved by the Board of Governors of the Federal Reserve are good for bankers (Jamie Dimon, CEO of JP Morgan Chase believes interest rates should be at 5%.), but higher rates if not timed properly could dampen economic growth as borrowing becomes more expensive. Even if employment training initiatives championed by the Federal Reserve have any positive effects, could those effects be diluted by a higher cost of living?

Also, poorly timed rate increases could take a little air out of asset bubbles. Seeing a house priced at $580,000 literally two doors down from an apartment building where rents average $645 a month gives me the impression that little asset bubbles are forming given the gap in wealth on this street. Worse yet, as property taxes rise with home values, landlords may be forced to raise rents placing an additional burden on low-income residents of West End.

Instead of contributing to an initiative that empowers low-income residents, the Federal Reserve may be adding to the wealth gap by widening the physical gap between well-off and not so well-off. No need for electronics in order to build a virtual gated community.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.