6 Min Read
YORK, Pennsylvania (Reuters) - After helping build a floor under the economy during the pandemic only to put a squeeze on it as inflation soared, Federal Reserve Chair Jerome Powell on Monday faced a public he’d warned would go through painful times as the central bank hiked interest rates.
On a day tour of York, Pennsylvania, once a thriving manufacturing town about 100 miles west of Philadelphia that local officials tout as undergoing a “fledgling renaissance,” Powell got an earful from residents and community and business leaders fretful about inflation and eager for greater certainty about what lies ahead.
Families are “squeezing to make ends meet,” caught between rising prices and a lack of accessible child care, Kim Bracey, chief executive of the YWCA York, told Powell. Families are often paying for child care, when it is available, on credit cards, and for those families, “there’s no retirement fund.”
“It is a new phenomenon,” she said. “They don’t have savings to dip into.”
Julie Keene, owner of Flinchbaugh’s Orchard, zeroed in on inflation, and pressed Powell on the uncertain environment businesses have having to navigate.
Inflation “is the biggest word of the whole year,” Keene told him. “Predictability is just gone. It is very hard to operate a business in a world where there is not predictability ... We were a little blindsided.”
Powell sought to assure Bracey, Keene and others he met with that central bank officials are acutely aware of the pressures that households are under and are intent on taking the steps they believe are needed to shore up the economy, safeguard the job market and bring inflation to heel.
“We’re very focused on restoring price stability,” Powell said, emphasizing - as he has done repeatedly in more official settings - that taming inflation in his view offers the best path to a sound economy and strong job market.
‘PAIN’ AND ‘DISSATISFACTION’
Since the onset of the pandemic in early 2020, Powell has made several efforts to communicate with the wider public, using venues like CBS’s “60 Minutes” program or other media outside the business press to reassure that the Fed would do what it could to stabilize the economy or, more lately, to control inflation.
That included, he has said, taking steps that would involve “pain,” potentially in the form of unemployment for some and higher interest rates for anyone buying a home or car or financing a business.
But Monday offered a more intimate, face-to-face discussion between Powell and the people who have lived with rising prices and have navigated the fallout from the Fed’s rate-hiking response.
A Gallup poll last spring found that confidence in Powell, after rising alongside the Fed’s support for the economy in 2020 to a level not seen since the tenure of former Fed chief Alan Greenspan, had fallen to a record low as inflation spiked and the central bank began raising interest rates at a historic pace.
Inflation has slowed since peaking in June 2022, but that hasn’t improved a public mood that Powell said last month showed “dissatisfaction” with an economy judged to be “terrible” - in spite of rising wages, a low unemployment rate and a continuing propensity by consumers to keep spending.
It was a contradiction on display in Powell’s interactions with people on a tour with Philadelphia Fed President Patrick Harker, his first in-person sit down and walking tour since the pandemic, an event occurring in markedly different circumstances from his last one in 2019, when low inflation and interest rates were still the norm.
‘FACING CHALLENGES’
The economy in this county of 458,000 residents in many ways has performed well, with unemployment at 3.6% and roughly as many people in the labor force now as before the pandemic. The population has continued growing, and the manufacturing sector, the source of eponymous products from mint-flavored candy to dumbbells and air conditioners, is still responsible for about 18% of jobs. Health care is closing in at 17%.
Powell first met with local business people at the Yorktowne Hotel, opened in 1925 and at nine floors - including the rooftop bar - is still the tallest building in town.
It was a wide-ranging conversation, touching on inflation and access to capital as well as issues around access to child care, worker shortages, and efforts to sustain entrepreneurship through the pandemic and, more recently, inflation.
After surviving the health crisis, Michelle Wright, owner of the Luxe and Mane salon, said clients were now making tradeoffs around what they can afford.
“I had a client say she could not come as often because of inflation,” Wright said. “People are definitely facing challenges in this moment.”
Powell and Harker then toured the surrounding area featuring two- or three-story red brick stores and homes that give the city a colonial feel.
In conversations with shopkeepers, Powell and Harker focused on aspects of the businesses and the owners’ backgrounds - not inflation or the impact of interest rates.
But at the York Central Market, Cresha Drayden, who sells natural soaps from her Our Sons & Daughters stall, told them that high and rising rents were the key barrier to her opening a full brick and mortar shop.
Jennifer Heasley, owner of Sweet Mama’s Mambo Sauce, another of the 70 or so shops at the market, had prepared a sample of her sweet tea brined hot chicken sandwich for Powell and Harker, doused with one of her signature versions of mambo sauce.
Speaking with Reuters ahead of their arrival at her shop she said high interest rates were pressing her hard. Inflation was bad enough, cutting her margin on a $6 dollar bottle of sauce to 45% from 65%, but each Fed rate hike was raising the payments in her credit line and also hitting the bottom line.
“I mean, lower the interest rates,” she said. “It really is hard .. if you are a startup business with poor credit.”
Reporting by Howard Schneider; Editing by Dan Burns
