Federal Reserve district president returns to a stronger Charleston

Jeffrey Lacker, head of the Federal Reserve’s Fifth District, is considered a hawk on inflation.

The last time central banker Jeffrey Lacker made a public appearance in Charleston, Boeing Co. was still circling the area as it prepared to light up the local radar screen.

It was March 2009. About seven months would pass before the aerospace giant announced a $750 million investment to set up a 787 Dreamliner assembly line in North Charleston — its first full-scale commercial aircraft plant outside of Washington state.

Since then, the company’s local payroll has swelled to more than 7,000 employees. Boeing also has brought other lines of work to North Charleston, including an engine propulsion unit for its 737 MAX jet. It also will build the largest version of the Dreamliner, the 787-10, exclusively in South Carolina.

Lacker, president of the Federal Reserve Bank of Richmond, which includes the Palmetto State, got a first-hand look at the Boeing juggernaut during a two-day visit to the Charleston area last week.

“It’s really impressive,” he said. “What I don’t think is broadly known is the extent of which ... they’ve added to what was just a manufacturing and assembly facility, and this looks now to be a bigger part of Boeing’s future than it looked a couple of years ago. So I think that speaks well for Charleston’s economic capabilities and for its work force ... because they’ll tell you ... the biggest uncertainty about the whole venture down here was whether they could attract enough of a work force to do the things they can do up in Puget Sound. They’ll tell you they succeeded.”

Aside from Boeing’s growth, Lacker has witnessed other sea changes since his last official visit to the Holy City. In 2009, the Fed was still cutting interest rates to jump-start the then-wounded economy. Now, some believe the time is finally ripe to start raising them again.

Lacker, a voting member of the rate-dictating Federal Open Market Committee, agreed that all signs suggest the first increase since 2006 is due. He pointed to a string of bullish data on the labor market and his own concerns about inflation.

Lacker embraces the old saw that says a central banker’s job is to close the bar before the party gets out of hand. If he has his way, last call could come as soon as the Fed’s June meeting.

“So for me, the fact that a strong case can be made that rates should be higher now suggests we should take the first good opportunity to raise rates,” he said.

Lacker, whose Fed territory is known as the Fifth District, sat down Wednesday with The Post and Courier to talk about the economy before giving a speech at the Riviera Theater on the importance of preparing students for the jobs of the future. Some edited excerpts:

Q: What’s the 35,000-foot view of the Fifth District?

A: The district’s experience has been mixed. Over the last several years, things have flip-flopped. Early in the recession and early in the expansion, the northern part of the district, the area around Washington, D.C., was doing better than the district as a whole. The Carolinas were hit harder in the recession. ... But interestingly, now the northern part ... is softer ... because of the cutbacks in federal spending. The same is true for the Hampton Roads area in southeastern Virginia. And the Carolinas are doing very well, particularly South Carolina, particularly the Upstate and the Charleston area. They’re growing more rapidly than our district and the country as a whole. It’s been fueled by, as you know, automotive, aerospace, manufacturing, but it’s broader than that. It’s very heartening for this region.

Q: What’s the outlook for housing?

A: The housing market has disappointed people in this expansion, but I think sort of the reason is this is one of the very few recessions we’ve had in a long time that was essentially caused by housing overbuilding. As a result, I don’t think we should expect a very strong contribution from housing going forward. Housing has been recovering. The housing market is firming. Prices have been moving ahead. But it’s not going to be gangbusters.

Q: How about employment?

A: I think labor market prospects look good. Employment growth has been strong. We had a soft month in the last report, but it’s not at all that uncommon for a weak month to appear. It comes after a run of very strong numbers, so it doesn’t materially change the outlook for me for the labor market.

Q: How will rising rates affect the financial markets?

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A: Percolate out? That’s hard to say. When we do raise rates, I think ... what happens in the fixed-income market and the equity market is going to depend, in part, on what signals people take from our decisions. People now are placing some odds, some probability of us raising rates at various meetings this year, so it won’t be a complete surprise. ... But when it happens, do people take from it that our view is that the economy is stronger than they had thought we thought? If so, markets could go one way. On the other hand, if they don’t take any read from that, from our action, about how we feel about growth prospects, then markets might go the other way. So it’s going to depend on a number of things.

Q: How will the Fed unwind its bond-buying program?

A: The committee released a statement with its September statement outlining how it plans to deal with that. And the committee’s decision is that they probably won’t sell assets. At some point, after our first rate increase, we will stop reinvesting the maturing proceeds of the assets we have. So as Treasury securities mature, we reinvest them in other Treasuries and other securities; as mortgage-backed securities mature we reinvest them now. At some point we’ll stop doing that, at which point the portfolio starts shrinking due to natural attrition, as it were. It’ll just roll down over time. It’ll take several years to get down to sort of normal levels … but it will be a gradual process

Q: What’s your assessment of Janet Yellen (who succeeded Ben Bernanke as Fed chair in February 2014)?

A: I think Chair Yellen is doing an excellent job leading the committee. I admire how she’s handled her duties.

Q: Anything keep you up at night? Any one thing you think about more than anything else?

A: I think we still should be worried about ‘too big to fail.’ I think we have a fair amount of work to do on that front. A lot of work is underway. I’m very heartened by the progress we’ve made, but there is more progress to be made, Another financial shock of the type we experienced in 2007-08 — if it isn’t handled right it could be as problematic as what we went through there. So I think we have a lot of work to do on financial stability.