What the Atlanta Fed does for you (exclusive web content)
Michael J. Pallerino
March 1, 2008
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During one of Alan Greenspan's trips to Atlanta, Larkin Martin decided she was going to ask
him a question that had intrigued her for some time. The question was a riddle of sorts. As the
managing partner of Martin Farm in Courtland, Ala., and the chair and long-time board member of the
Federal Reserve Bank of Atlanta, she was curious. If Greenspan could only choose two or three of
the statistics he used to measure the economy, which would he select? Which were the most important
indicators to help gauge the state of our local and national economy?
She will never forget his reply. "Most people think we look at the economy in that way
[predetermined statistics], but we don't," responded Greenspan, who served as chairman of the U.S.
Federal Reserve Board from 1987 until 2006. "Think of the economy as a large, three-dimensional
moving object with sides that constrict and expand (an ameba, if you will). Because the economy is
a constantly moving, multi-dimensional thing, there are a number of pressure points that can impact
it. These pressure points [which aren't always the same] are what we are always trying to find."
Greenspan's visual explanation helped Martin and her fellow Atlanta board members see the
economy for what it truly is – a moving, ever-evolving cycle in which no consistently defined
statistics or measuring sticks are ever the same. On any given analysis, pressure points could be
the housing market or the energy crisis or the labor market, all of which are constantly shifting
up and down.
Helping define our ever-fluctuating economy is no easy task, especially in a time when the
"R" word is thrown around with increasing frequency. So what is today's business climate really
like? How much did yesterday's reportings impact us? And does anybody know where we are heading?
Enter the Fed ... and its 12 regional banks, including Atlanta. Here's a recent example of
how Federal Reserve Banks help define and impact the local, regional, national and worldwide
economies. Atlanta Fed President and CEO Dennis Lockhart, who may be one of the busiest Fed
executives in America (with apologies to Mr. Bernanke), recently praised the Federal Reserve and
other central banks for helping address financial market illiquidity issues by delivering liquidity
when and where it was needed. He lauded the recently announced Federal Reserve's Term Auction
Facility, which provides depository institutions a facility for borrowing money from the Fed on a
fully collateralized basis.
Lockhart heads one of the largest of the 12 reserve banks that serve as the operating arms of
the Federal Reserve System, the nation's central bank. The Atlanta Fed examines banking
institutions in Alabama, Florida, Georgia, parts of Louisiana, Mississippi and Tennessee – states
that make up the Sixth Federal Reserve District. Each of the Feds act as fiscal agents for the U.S.
Treasury and operate with a board of directors that represent small and large businesses with
executives in industries ranging from banking, agriculture, home building and retail.
The Atlanta Fed houses facilities in Atlanta, Birmingham, Jacksonville, Miami, Nashville and
New Orleans. Each Atlanta branch has a fully functioning board of directors that help oversee the
distribution of cash to banks, savings and loans, and other depository institutions; transfer of
money electronically through the FedWire funds transfer system and Automatic Clearing House. The
Atlanta Fed clears millions of checks every day.
The power of information
The cornerstone of the Federal Reserve Bank of Atlanta – and the other branches – is its
board of directors, which serve as an information resource for the Fed staff by providing real-time
reporting and analysis across the industries they serve. During any given reporting cycle, topics
range from capital spending, to the labor market, to the housing sector and inflation. Remember
Greenspan's analysis of the economy – each Fed plays a role in analyzing the ever-shifting economy.
The regional Feds and their boards act as "on the ground" informants by providing information
on the districts they serve. This structure helps supply the analysis and any recommended solutions
for the economy.
"The whole process is as much an art as it is a science," says John Robertson, VP of regional
research for the Atlanta Fed. "A lot of the information we gather comes to us not so much in
numbers, but words. We have a great team that has developed a real skill for interpreting these
anecdotes from our board."
Robertson likens the process to how a reporter researches a story. The Fed team continually
pounds the pavement, so to speak, for real time and real life analysis on what's happening in the
economy. Information is gathered through reports from bank and branch directors, as well as
interviews with key business contacts, economists, market experts and other sources.
"Sometimes you're getting the tone from the people who are living it," he says. "You can hear
it in their voices and tell whether what they are saying is optimistic or not."
To round out the information process, the "on the street" analysis is supplemented with
random surveys. When the information cycle is closed, the Fed team sifts through the data to see
where the trends and differences are. "The Atlanta market gives us a pretty accurate insight into
the overall economy," Robertson says. "This area is not insulated from the rest of the nation –
it's interconnected. What happens here [typically] reflects what is happening on a national scale."
In her 13 years as an Atlanta Fed board member (one of the longest tenures of any member on
any branch), Martin has just about seen it all, including the economic devastation wrought by 9/11
and the bursting of the tech bubble. "You get a vision of some of these things before they appear
on the front page of the newspapers," Martin says. "It's not like we get insider information, but
we talk about what trends we see and how they could play out. There are a lot of times we talk
about something that doesn't pan out as a trend. But other times the things we discuss will show up
in The Wall Street Journal or USA Today. It's fascinating."
Martin says today's economic climate – which has spun out of control thanks to the challenges
brought on by the instability in the lending and housing markets – are as interesting as anything
she's ever seen. "It's a downturn in one sector, but the tentacles of the ownership of that
downturn – the securitization of the mortgages and the complex financial instruments that were
developed over the past few years – have created problems that weren't expected," she says.
Those problems continue to cause businesses to be wary of forging new relationships. "The Fed
is looking into to how new regulations could help in the way of lending standards, etc.," Martin
says. "From the wisdom of what we have learned, it could make a difference. But working through
what has gone wrong is something our country will have to deal with for months, if not years."
A helping hand
As a long-time observer of Atlanta's economic scene, Dr. Don Sabbarese says the Federal
Reserve Bank of Atlanta serves as a critical source of information, especially on the academic
side. Sabbarese, director of Econometric Center at Kennesaw State University, cites one of the
Fed's information vehicles, the "Beige Book," as an invaluable resource.
Published eight times a year, the book, available to the business and academic communities,
as well as the general public, provides an overall summary of the Fed's 12 districts, lending an
insightful perspective into the nation's economic trends and patterns.
Along with the "Beige Book," the Fed's research and expertise is delivered in speeches,
participation in public policy organizations such as task forces on local infrastructure and
commissions on state tax reforms, and sponsorship of conferences on current policy issues.
"When you look at what's happening out there today, [academic institutions] have been able to
get a handle on issues such as job losses in the manufacturing industry or what's been happening in
the housing and financial services sectors," Sabbarese says. "From everything being reported, there
aren't many bright spots out there for 2008. Right now, we're speaking to a lot of business groups,
and they want to know where we are and where we're heading. That is the kind of information the
Atlanta Fed helps us to analyze and understand."
Setting the economic tone
The Atlanta Fed carries out a number of functions affecting the Sixth District and nation's
economic well being as a whole. Through monetary policy, which helps influence the availability of
money and credit, the Atlanta Fed plays a key role in keeping inflation in check while promoting
economic growth.
By supervising and regulating commercial banks, the Fed fosters the nation's financial
system's safety and soundness. And by providing check-clearing and other payment services to
depository institutions and the federal government, the Fed helps make commercial transactions more
efficient.
The Fed also plays a vital role in the monetary policy area, seeking to keep prices stable
and economic growth at its maximum sustainable rate. For example, Lockhart, along with other branch
presidents and their boards, serves as a decision maker on the direction of interest rates. The 12
reserve banks meet every six weeks in Washington at the Federal Open Market Committee meeting to
discuss and formulate their strategy.
"Monetary policy is a blunt instrument," Martin says. "It's not a scalpel or stiletto knife.
Any time you raise or lower rates, you could be doing it at a time when you know you are helping or
hurting certain industries. But these decisions have to be made on balance, on the whole.
"Today the Fed is challenged, along with other private sector businesses that are involved in
the handling of paper checks, in constricting their infrastructure because the volume of paper
checks is shrinking," she says. "And to appropriately size yourself in a shrinking environment is a
challenge for anybody, especially for a quasi-government institution where the handling of that is
all out of Atlanta. Our district is very involved in that process."
Photography by Lance Davies.