Gabriella Chiarenza

Good morning, and welcome to Connecting Communities. Thanks for joining us today. I’m Gabriella Chiarenza. I’m a senior writer for Fed Communities. And I’m honored to speak today with Federal Reserve Governor Michael S. Barr about community development at the Fed and how understanding communities’ day-to-day experiences in the economy informs the Fed’s work. So Governor Barr, thanks so much for joining us today.

Governor Michael S. Barr

It’s really just a delight to be here with you.

Gabriella Chiarenza

Governor Barr took office as a member of the Board of Governors in 2022, and he currently serves as the Fed’s oversight governor for consumer and community affairs. He brings to this role a wealth of experience and interest in community development, so we’re really excited to talk today. So before we start the conversation, just a few quick notes. The views expressed today in this conversation are those of the speakers. They do not necessarily represent the views of Fed Communities or the Federal Reserve System. To help us stay focused on today’s event, microphones have been muted and the chat and Q&A features have been disabled. But if today’s conversation piques your interest, please check out Fedcommunities.org, which is the Federal Reserve’s home for articles and data and other resources on community development. You’ll find the video and podcast recording of this session on Fedcommunities.org within two weeks of this event.

So with those things out of the way, we’re here today to talk about community development and the Fed. And when most people think of the Fed, they think of monetary policy or interest rates, but really understanding how people are experiencing the economy in their day-to-day lives, in their homes, their workplaces, their neighborhoods, is vital to the Fed doing its work in an informed way. So that’s the focus of the Fed’s community development function. Its work helps the Fed understand key economic indicators, so things like, how are people feeling about accessing jobs and credit and banking services? What’s impacting the affordability of housing and child care? Whether small businesses can get the staff they need or the operating capital to expand. And importantly, how families are feeling about keeping their household finances stable and secure and being able to save for the future. These are all things that fall under community development.

So community development staff in each of the Fed’s 12 regional districts, spend their time really getting to know the ins and outs of daily economic life in those places, especially in low and middle income communities. And these teams, these wonderful teams, discuss economic conditions with local leaders and service providers. They talk with community bankers and small business owners. They learn from focus groups and survey input, and they track and report on crucial trends in local and regional data. These are all things that fall under our community development umbrella at the Fed. And then we have my team at Fed Communities, which talks with people around the country and lifts up these economic stories behind the numbers. And fed policymakers, like yourself, spend their time visiting all these communities regularly and hearing from Americans about how they’re faring in the economy. This is all under our big umbrella of community development. But I think the big question is, why? Why does the Fed do community development work, and what do we do with all of these things that we learn from communities? So that’s what we’re really hoping to talk about today.

So with that, we’ll jump into the first question for you. I want to start with a little bit about your background in community development, and if you don’t mind me quoting you back to you, you were in New Orleans a couple of weeks ago and you mentioned in your remarks that this work has given you the opportunity to get back into communities and talk with people. And that it’s reminded you that America really is its communities, and that community development is essential to a thriving and prosperous America, which I certainly agree with. I think a lot of our colleagues would share that sentiment. But can you say a little bit about what community development means to you and how it’s informed your economic work?

Governor Michael S. Barr

Yeah, so the event that you’re talking about in New Orleans, I was there to celebrate, to mark the 25th anniversary of the enactment of the New Markets Tax Credit, which is one of the areas I worked on early in my career when I was in the Clinton administration. And New Orleans has used a lot of these New Markets Tax Credits to actually improve economic development and lift up local communities, including those who were very badly hurt by Hurricane Katrina. So it was a really, I think important thing to mark that. And it did remind me of my time when I started in this field, which is now 30 years ago. I joined the Clinton administration back in 1995, and at the time, the Treasury Secretary, Bob Rubin, really wanted to think about ways to expand access to credit and financial services for low-income families and to empower local low-income communities. And that was not an area that the Treasury Department was known for at the time.

Gabriella Chiarenza

Sure, yeah.

Governor Michael S. Barr

But now it is. And what we did is, we built up a whole range of supports that Treasury could use to help local communities in this way. The original Community Reinvestment Act rule that we’re operating under now was updated in 1995. We had a whole bunch of activity to strengthen the Community Reinvestment Act. We built something called the Community Development Financial Institutions Fund, which has been now for almost, well, 30 years now, providing support to local community development financial institutions around the country, whether those are loan funds or banks or credit unions. And we did a lot of work that became the New Markets Initiative, the New Markets Tax Credit and related initiatives. And I got to travel around the country with the president to try and explain why this kind of investment was so critical.

The work that I do now at the Fed is echoed back to that work then and my career along the way since. I’ve been focused on the ways in which we can use the tools we have to help provide better access to credit, better access to financial services, better access to the kinds of supports that local communities need to thrive. And that mission is really a core part of the Federal Reserve’s mission. So it really has, for me at least, come full circle.

Gabriella Chiarenza

Great. Well, with that kind of background in community development, you’re the perfect person to answer this question of, why is community development one of the Fed’s core functions? And when we say community development, maybe you want to mention a little bit about what we put under that umbrella here at the Fed.

Governor Michael S. Barr

Yeah. Well, let me just start by saying, I think of the Fed’s mission broadly as being about supporting a healthy economy. We have some tools to do that that are monetary policy tools. Congress has told us we’re supposed to, for example, try and steer the economy using our monetary policy tools, such that we reach maximum employment and have stable prices. And that’s what people usually call the dual mandate of the Fed. We also have other functions at the Federal Reserve. We have a community development function. We run the backbone of the payment system. We have really important work that we do internationally. There are all these functions that together make up the functions of Federal Reserve, and a core important function within that is community development and consumer protection.

So for community development, what do we do? We do outreach to understand what is going on in the economy. That’s really important as we’re conducting monetary policy. We of course, get lots of data about what’s going on in the economy, national data. But we also need local data, including local data about low-income communities. We need to know what small businesses are thinking in their communities. We need to know how households are making decisions in their communities. And it’s a big, complicated country we live in, and so for us to do our jobs properly, we need to have our fingers on the pulse in all of these communities around the country. And so our community development function in the 12 Federal Reserve banks, regional banks, helps us get that information.

We also do a lot of visiting around the country. I know I’m on the road quite a bit to try and talk to community leaders, small business owners, to households, to CDFIs, workforce development agencies, non-profits, large employers in the area, to really understand what’s going on. And our community development function supports that kind of outreach. Community development also plays a role in helping us do research on what’s going on in the economy. We have two, for example, really important surveys that we do, the Survey of Household Economics and Decision-making, or the SHED, which is a national survey that sheds light on what’s going on for households all around the country. And then the system also runs a Small Business Credit Survey that’s in the field now, I believe. And that helps us, again, get a finger on the pulse of what’s happening in the small business community.

These are really all important inputs into how we think about monetary policy, and they also translate into the work that we do on the ground helping local communities to thrive. We’re not the engine of economic growth in the country, but we can help convene people, we can help shed light on issues, we can help problem-solve together. And these are all community development functions.

Gabriella Chiarenza

Yeah, I think oftentimes, people don’t know how much listening we do. We spend a lot of time convening people and bringing people together who might not otherwise meet each other, to be able to have some of these conversations in a safe space at the Fed to be able to talk about things that are impacting them. So that’s a very good point that you make about that. I know that you’ve been traveling a lot, as you mentioned, and you’ve been talking with people all over the country. Can you tell us a little bit about what you’ve been hearing from people? How are people feeling? What kinds of input are you getting, depending on where you’ve been?

Governor Michael S. Barr

Yeah, so there are lots of things going on in the country at the same time, so it’s hard to say any one particular theme. But I will say people really didn’t like high inflation, and they’re really focused on helping us helping to make sure that they can afford the things that they have and need in their lives. And so that’s why we spend so much time on that objective working to get inflation back to our 2% target. We made a lot of progress on that, but we still have some work to do. And then people are worried about the employment situation. We have kind of a two-speed economy right now. Wealthier households are doing quite well, most of them, but low-income households, many of them are struggling, and the labor market people are worried about if they lost their job, whether they might get a job in the future. And so we have to pay careful attention to making sure that the labor market is solid. And both those themes come out in my conversation.

In many communities that I visit, people are thinking about, worried about access to credit and credit availability. That was particularly true, for example, I visited two different Native American communities not that long ago. And both of them were struggling with getting access to credit for home mortgages in particular, and for small business growth in their communities because of the particular challenges that Native communities often have. So I visited the Salish and Kootenai tribes on one side of Glacier Park, and the Blackfeet Nation on the other side, and they were both struggling with very different economic situations. For the Salish and Kootenai, it was a massive increase in the economy on that side of the Park were pricing people out of affordability, and in the Blackfeet Nation, they were looking to get economic development to kind of jumpstart their local economy. So lots of nuance around the country, but people are really focused on our core mission, which is making sure we’ve got stable prices and maximum employment.

Gabriella Chiarenza

Yeah, it’s interesting that you bring up Indian country, because we actually have a new piece out today. We went out and spoke with some folks in Oklahoma, the Chickasaw Nation, the Choctaw Nation, and the Pawnee Nation, and they have really been doing some very interesting things with how they’re financing their tribal enterprises. We looked at healthcare in particular, and they’re building these beautiful, really amazing healthcare systems, and they’re open sometimes only to tribal members, but also often to others in the community. So they’re getting innovative with how they’re funding things like that. I wonder if you could speak to any sort of innovations you’ve seen out when you’ve been out in communities. We think of these communities often as being underserved or struggling, but actually, so many of them are innovative in their own way. So I wonder if you could speak to any of those things you’ve seen.

Governor Michael S. Barr

Yeah. Well, sure, let me also say with respect to Indian country, this year I got a chance to celebrate an important part of the community development function for the system, which is we have a Center for Indian Country Economic Development out of the Minneapolis Fed, and it was their 10th year anniversary. And I got to meet with tribal leaders and economic development leaders around the country, who came to celebrate this moment. And that center has been providing really essential research on what’s going on in Indian country so that we can make better decisions, understanding, again, all parts of the country. And also, local leaders can use that research to make progress in what they’re trying to do on the ground.

And one aspect of that research on innovation is focused on the role of CDFIs in Indian country, and there are lots of institutions there that are using culturally-sensitive, appropriate techniques to reach out and provide the support to people that they need. I was recently in Atlanta and talked to small business leaders there about the work that CDFIs and other lenders were doing to support small business development, including through, I think quite innovative use of incubators that provide not only help with access to credit, but also access to the skills that small business owners need to be successful.

Oftentimes, a small business owner is really passionate about the thing that they’re good at that they want to do, like making pies, but they may not have the full range of financial skills or accounting skills or other cash forecasting skills and the like, that they need. And so CDFIs and incubators and local development organizations are helping to provide those kinds of skills to small businesses. When I was at Michigan, one of the things that I did is, I worked with colleagues to set up the Detroit Neighborhood Entrepreneurs Project to help local businesses in Detroit get access to that kind of skills. In our case, it was a university partnership, so we had faculty and students working together to work with small businesses on that skill development. But there are other models around the country that provide that important aspect.

And the third thing that this incubator was talking about in Atlanta is that, the third, I think critical element beyond credit and skills is access to business opportunities. So oftentimes, for a small business to be successful, they need to have a network in order to get access to those sources of business opportunities, And they may not have access to that same network that larger businesses or more established businesses has, and so creating that kind of network opportunity is really quite critical. And when I was there, the head of this incubator was not there because he was trying to help pitch a few small businesses from that community to a very large retailer. So those are the kinds of things I’m seeing that are really, I think pretty impressive.

Gabriella Chiarenza

Great. Well, since you mentioned small businesses, they really are the cornerstone of the U.S. economy in so many places and so many communities. What are you hearing from small businesses specifically about what they’re dealing with right now, what their concerns are, and maybe what the opportunities are for them?

Governor Michael S. Barr

It’s really interesting. Whenever I talk to small businesses, you get this kind of two very different messages from the same people at the same time. One message is, “It’s really hard to run a small business.”

Gabriella Chiarenza

Sure. Yes, sure.

Governor Michael S. Barr

“Here are the barriers, here are the things going wrong. Here are the things that are really difficult for me. I’m dealing with uncertainty or I’m dealing with tariffs or there’s too much regulation, or I can’t get access to the credit that I need. I can’t get enough workers or the right skill set.” These are all things that small businesses struggle with. And then you also hear at the same time from the same people, enormous optimism about the country and about their own business. And I think that is reflective of, first of all, what it means to be a small business owner, because you have to be-

Gabriella Chiarenza

Yes. Resilient.

Governor Michael S. Barr

Resilient. And optimistic. If you weren’t optimistic, you wouldn’t run the business in the first place.

Gabriella Chiarenza

Of course.

Governor Michael S. Barr

But you need both those kinds of things. So I hear a lot when I go around the country from small businesses that are both those things, an incredible grit and determination to overcome these barriers, and optimism about their future and the future of the country. And that to me, is pretty great.

Gabriella Chiarenza

So you also mentioned CDFIs, and they’re such an important part of our community development framework and of so many communities and funding things that communities need. I know you speak with them a lot. You’ve been involved with them for a very long time with the CDFI Fund. What are you hearing from CDFIs or from folks working with CDFIs about how they’re dealing with some of the funding uncertainty that’s going on, and just how they’re feeling about being able to fund and continue to fund the projects that are so important to them and their communities?

Governor Michael S. Barr

I do think CDFIs are worried about whether they’re going to continue to have the funding that they need to do the important work in their local communities. I hear that all around the country, and I certainly understand that concern. CDFIs have been so essential, really over the last 30 years in helping local communities get the credit they need to thrive. I was just talking with a group of CDFIs not that long ago, and they’ve been doing such important work. They were present during the pandemic. They helped so many businesses and communities and households get through that period of time with the supports that they needed. And now, really, the CDFIs need the support of the country to continue to do their important work.

Gabriella Chiarenza

Okay. Okay. So let’s talk a little bit about the value that the Fed finds in having all of these community conversations engaging with all of these people. How does the Fed take what it learns and apply it? How does that happen?

Governor Michael S. Barr

It happens in lots of different ways all over the country. It happens in the Reserve banks and it happens here at the board. We gather all kinds of input. Some of that input goes into what’s called the Beige Book, which is a report on economic conditions in all the regions around the country that helps us understand what local communities are experiencing. And it’s important, a qualitative input into our decision-making at the Federal Open Market Committee where we set interest rates and set monetary policy. So the Beige Book is one way that matters. I mentioned visits around the country that gives policymakers a chance to understand, again, what’s happening everywhere around the country. We have advisory councils that come in to see us, that help us understand, have a more nuanced feel for what’s happening. For example, in a recent meeting, we had a discussion about the impact of new data centers for artificial intelligence on local communities and the positives that it’s bringing to communities in terms of jobs and economic support and a tax base, and the negatives in terms of strains on the electricity grid and schools and roads and the like.

So having that kind of nuanced feel, I think is really critical. So we use that as inputs to monetary policy. We use it to help local communities to bring people together, to convene, to produce better outcomes in that local community. Reserve banks around the country have different areas of focus that they often do to do that, whether it’s childcare or focused on the affordability of homes and rental units. Affordability is obviously a key issue for many people in the country right now, and we’re able to help shed a light on those affordability concerns. And sometimes we can even develop tools that help address those concerns. There’s, for example, recently staff from the Federal Reserve System developed a tool that helps match workers with available jobs and firms with available workers.

Gabriella Chiarenza

Yeah, it’s the Occupational Mobility Explorer.

Governor Michael S. Barr

Yes, exactly.

Gabriella Chiarenza

It’s been very, very popular, and helping a lot of people.

Governor Michael S. Barr

And so we’re using that, and firms and employers are using that, and we also see some large job matching entities starting to use this kind of tool. So we can also step in, and we’re not finding jobs for people, but we are providing a tool that helps workers and firms better match.

Gabriella Chiarenza

Yeah. And we have a lot of those tools that are being built across the system that are really actively helping people in communities. Another is the Atlanta Fed’s benefits cliff tools that they use with communities around the country, and we get to talk with a lot of folks who’ve been using those tools. And also, just dealing with that issue of benefits cliffs, when you get a new job and then you’re making too much and you lose some benefits, and it’s still not enough to make ends’ meet. And learning how difficult that can be to navigate, having these tools has really helped people be able to work with a counselor and be able to figure out how to take that opportunity and get a better job.

So, it’s really exciting to see that our community development staff are doing things that are not just interesting to them, but also really useful in the community. I know another thing that we really depend on a lot to find out what’s happening in communities is our advisory councils. Who are the kinds of people who sit on those councils? And we have them here at the board and then also across the districts. And what kind of insights do they bring? How is that helpful to you all?

Governor Michael S. Barr

Well, so we have a number of different advisory councils. One of those advisory councils is community development-focused, and within that council, there are people from all different kinds of organizations. Some of them are CDFIs that are operating in different reserve banks around the country. We have state or local government actors sometimes participate in that as well, to get a sense of how those organizations are using strategies. We have affordable home builders. We have people whose expertise is in one or another particular area, like, say, childcare. We sometimes have academics in a mix on those advisory councils. So it really is, we’re trying to get a feel. You can’t get full representation, but you get a better feel if you have people from diverse backgrounds to participate.

Gabriella Chiarenza

One of the other things that the community development teams have been building out in some of the banks is place-based initiatives, so Working Places and Advance Together. Do you want to say a little bit about where those came from and what they’ve been doing in their communities?

Governor Michael S. Barr

Yeah, so I mentioned before that each reserve bank tends to have an area that they’re particularly focused on that usually comes from the bottom-up, from the local community’s interest and areas where they see opportunity to provide support. So that kind of approach allows the Federal Reserve, which is a big institution, to operate in a local level and a level that is attuned to the particular needs of the community. I visited the Boston Fed’s Working Cities program. We went to East Hartford and had a roundtable that was mostly focused at that particular juncture on workforce issues and childcare issues, and trying to help people navigate that space. I visited with the Dallas Fed with Lorie Logan, in a community in South Dallas that was trying to overcome the severe economic challenges of that community that’s just a few miles south of the main part of Dallas.

I went with Raphael Bostic to the Mississippi Delta and explored how rural communities are facing challenges trying to attract jobs at a time when population is moving away from the Delta. We saw thriving communities. We went and had a terrific roundtable with entrepreneurs in Clarksdale, which is in the Delta, where I had been 30 years before with President Clinton to advocate for the New Markets Tax Credit. It was interesting and fun to be back 30 years later and see the work that was going on in entrepreneurship and economic development in that city. So again, all over the country, I’ve had a chance to see in St. Louis and in Omaha, in Atlanta, in Jacksonville, and here in Washington, D.C., the incredible work that’s happening in community and economic development. And the Fed is often an important convener in all those cities that I’ve been to.

Gabriella Chiarenza

Yeah, absolutely. So you mentioned that you’re very interested in access to credit, and there’s been a lot of work done across the system as well on banking deserts and just making sure that communities like some of those in Indian country and other places around the country and rural places that just have poor access to banks and to financial services. What has that work meant to the system, and how is that helping people figure out where there might be gaps to fill so that people really do have access?

Governor Michael S. Barr

I think it’s really critical. Financial inclusion is an area that I’ve worked on for 30 years now, and I’d say there’s been a lot of progress over the last 30 years in terms of bringing more people into the banking system and providing accounts that are better tailored to the needs of low and moderate income people. There’s a big movement around the country now, for example, the Bank On movement that the Cities For Financial Empowerments runs, that helps to make sure that there are safe and affordable bank account options for low- and moderate-income consumers. And many, many banks around the country have signed up to offer these accounts, and the Federal Reserve system helps to track how that progress is going and what work can be done. The work on banking deserts helps to isolate and understand where there’s less progress that’s been made. There’s been a lot less progress made in Indian country. There’s been less progress made in low-income rural communities, for example. And so if you’re able to help target and shine a light on that, then banks can see, “Okay, well, I might be able to serve this community better.”

And the CDFI world has done a lot to try and move into those banking deserts. When we were in the Delta, one of the very small towns that we went to is a beautiful spot that where two railroads met back in the day, and there’s a famous jazz song that came out of that town. So we were there to see what was going on in that community and all the banks had left, but CDFI had recently come in, taken over a former bank branch, and revitalized it. And so that community now has a bank and banking services once again. So I think shining a light on that kind of gap can help provide the basis for the next step, which is filling the gap.

Gabriella Chiarenza

Right, absolutely. I just want to talk a little bit about some of the … Since you’ve been involved with community development and with financial inclusion for so long, how you’ve seen those things changing over time. Especially lately with some of the major shifts to things that have been in place for a long time, how are you seeing those shifts happen and what are people doing to react to how traditional models of doing community development or funding certain things might be shifting?

Governor Michael S. Barr

Yeah, I think it’s too early to tell how that’s going to go. My experience has been that the community development field is a resilient field-

Gabriella Chiarenza

Indeed.

Governor Michael S. Barr

… and has gone through lots of big changes over the last 30 years in how they operate in the competitive landscape they’re operating in and in the availability of funding. But I think it’s too early to see how the field will adapt and change in the next few years.

Gabriella Chiarenza

Sure. Another thing that we keep an eye on and do a lot of work with is the Community Reinvestment Act and how CRA is changing and being applied. Can you say a little bit about how the Fed is thinking about CRA these days?

Governor Michael S. Barr

Yeah. Well, I think the Community Reinvestment Act remains a really critical tool to help ensure that banks are meeting the credit needs of low- and moderate-income communities, and that’s been the case since its enactment in 1977. It’s a particular kind of way of shining a spotlight on these community needs. And you’ve seen lots of innovation by banks and community groups working together using the Community Reinvestment Act as a way to bring them together. And those kinds of partnerships have resulted in more financial inclusion, more people being brought into the banking system, better bank account products, more investment in CDFIs, investments in the low-income housing tax credit, investment in the New Markets Tax Credit. So it’s really just an absolutely critical tool. We had a long period working with the other agencies to come up with a revision of the 1995 rule two years ago that I thought was terrific, and that I think made a lot of progress in updating it to the modern age, and also to addressing long-standing questions that people had where both banks and communities wanted greater clarity.

Gabriella Chiarenza

Sure.

Governor Michael S. Barr

Unfortunately, the agencies were sued, and given that lawsuit, we decided to move back to the 1995 rule. And that’s the rule we’re implementing right now. It’s the same rule that’s been in place during this time. And as I said, I think the CRA remains an absolutely critical, important, central tool for banks and communities to work together, and it’s important responsibilities of the Federal Reserve to make sure it’s implemented in a strong way. And so, we are doing that. We’re going to continue to focus on good, strong, solid implementation, continuing to develop tools that will help local communities, and making sure that banks, examiners, and communities all have the information they need to make good decisions.

Gabriella Chiarenza

And I know as part of that revision process, there was a lot of discussion about where there might be missed opportunities of things that could be funded. And one of those things was opportunities in the Indian country, and one of those things was how to help communities be resilient in the face of weather events, things like that. So even though we’re still with the old rule, has there been some thought about how to apply some of those things anyway? Have some of the financial institutions really picked up on some of those ideas and run with them?

Governor Michael S. Barr

Yeah, one of the things that I saw when I was out visiting the Salish and Kootenai tribes, we had a roundtable with lenders in that community, and there was really good discussion about how to continue to focus on expanding access to credit in Indian country. And that’s just one example, but I do think people are trying to think creatively how to use a mix of government programs and private programs, partnerships with sovereign nations, and with state and local governments. So those strategies I think will continue, and will continue to provide support for the work that is going on around the country.

Gabriella Chiarenza

There’s obviously also a lot of change happening, both in the economy and in opportunities in community development, and it’s very exciting. There’s a lot of new things happening. One thing we are hearing a lot about and talking a lot about is artificial intelligence, and there’s been some excitement about that, but also some concern, especially on the employment side. So I’m wondering what you’re hearing about that and how the Fed might be thinking about AI and employment.

Governor Michael S. Barr

Well, each of us do a lot of thinking about artificial intelligence and its potential effect on the community. One thing to keep in mind is artificial intelligence has been around for many, many, many decades. The big change is with the advent of generative AI and its widespread distribution. When ChatGPT basically went live three years ago, that sparked a massive increase in the use of AI, and it moved from a province of specialized AI-focused companies or units within the largest firms, to something that a wide range of the human population could have access to.

Gabriella Chiarenza

Right.

Governor Michael S. Barr

There was a very significant change in the potential uses of artificial intelligence, and generative AI has some features that make it likely to be quite a transformative technology. First of all, it can be widely adopted. You need very specialized equipment to generate the models, but you don’t need anything specialized to use them. So the fact that on my phone I can use generative AI, I don’t need to update the hardware, I don’t need to do anything, means that it can have, and has had, widespread rapid adoption. It also has features that make it able to improve research and development, including its own research and development, and that has very important potential for improving the productivity of the U.S. and global economies. And it might have widespread application in other realms. So people are using generative AI not only for things like coding, but also research and discovery and material science that may help us address issues of climate change, or disease analysis and management that may help us find new cures or new strategies for helping people who are suffering. So it has enormous potential upside implications for the economy.

But it also might be causing or going to cause severe dislocations. I understand that people are worried about the effect on the labor market, and I think that’s an appropriate thing to worry about. If the change happens very rapidly, you could see significant dislocations in particular sectors or more broadly. We may be beginning to see a little bit of that in the employment data. Not a lot, but a little bit of it in the sense of this low hire, low fire economy we’re in right now. The low hiring part may be due in part in some sectors, and for some workers, to the introduction or potential introduction of AI. So you can see that for particular sectors that are more AI exposed. The young workers, new entrants to the labor market are having a harder time getting that first job. So it is, I think probably showing up a bit in the data now, and might be an area to watch in the future.

My own view is kind of optimistic, because I think even if there are short-term dislocations, what we’ve seen with the introduction of technologies in the past is that over the long-term, new jobs are created. Jobs that exist now change to be more productive, so workers who are more productive get paid more. So it could increase real wages for people. Could create new jobs for people in the future. And so I think in the longer term, I’m optimistic that the introduction of AI will help us grow better as an economy if we’re attentive to the concerns people have about labor dislocation, appropriate training, making sure people are brought into the system and not left behind by it.

Gabriella Chiarenza

Right. Yes. Which is, of course, another important function of community development throughout all of these technology changes we’ve seen in the past, the communities are the ones who’ve stepped in with resources and community organizations and employment agencies to help people adjust. But another thing that people have to keep in mind when we’re in moments like this, is that it’s important to have some savings. And of course, that’s been very difficult for lower and middle-income communities. It’s just very hard to save. I know there are some innovations that might be helping with that, or hope to help with that, things like FinTech. Do you want to say a little bit about how people are thinking about saving in a difficult time to save, and then also what might be helpful to them in doing that?

Governor Michael S. Barr

Yeah. I do think there’s, again, a big gap in the economy right now between the upper, say, 40% of the country, and everybody else. And it is very hard not just for low-income people, but for middle-income people, to have the ability given their expenses and their limited income, to put money aside to save. Very, very challenging. And if you’re living paycheck to paycheck, you can also experience shocks that not only are you not saving, but you’re falling behind. You might get yourself stuck in a bad credit situation or you might need to do other things, like forego actual getting medical care that you need because you don’t have that kind of buffer. So I think it’s super challenging.

The financial sector can do some things to improve the ability of people to save. Having safe and affordable bank accounts, I think is really critical for that. There are budget management tools that banks and FinTechs have been providing that can help people manage those circumstances. One of the things the Fed has been working on for a while now, and we launched a couple of years ago is FedNow. FedNow is a payment system that enables banks to be able to send money and have it received right away, or to receive money and have it used right away. And that’s really critical, especially for low- and moderate-income people to have better control over their financial lives.

Low-income people have what I call no slack, no financial slack in their lives. They don’t have the ability to have that buffer if something goes awry. So if you have no slack, you really have to have control over your financial life. And with instant payments, you can have better control, so you can get the money that you’re owed right away, and you can time your payments to exactly when you need to make them so you can manage your budget more carefully. So I think once FedNow is widely adopted, which I hope it will be, that will be a help that banks can offer to their customers to help them better manage their funds.

Gabriella Chiarenza

Great. I’ve been in community development for about 20 years, which is less than you have, but I have a long enough time to really have spent some time talking with people in a lot of different kinds of communities. And one of the things that’s really stuck with me over time is that we talk about these communities as being underserved or overlooked or under-resourced or struggling, and really when you talk to them, you realize there are so many resources in these communities. And they’re often in the form of people and ideas and really great things that maybe just need some capital behind them. And I can think of so many stories that I have from those visits. I wonder if you could share maybe a story or an experience that you’ve had out in the community that’s really made you feel that strength of what we often call low- and middle-income communities? They’re really doing really incredible things with not a lot of resources.

Governor Michael S. Barr

Right. Yeah, that’s been my experience too. When I, again, go out around the country, even in communities that don’t have the external resources that other communities may have, there are people in there who have incredible entrepreneurial spirit and drive and good ideas, and can get out there and make a difference and selling those ideas if they have a little support. One of the entrepreneurs that I met in one of the recent roundtables was a young person who had developed a new security company using robotics, and what a great innovative idea. He had struggled at the beginning to get access to credit to get this going. He got access to credit and now it’s really taking off. So there are people there with the skills and with ideas, and they just need a little bit of something, access to credit, access to that missing skill development, access to business opportunities, and then they can really thrive.

Gabriella Chiarenza

Yeah, absolutely. I know another piece of it that’s very important is trust. And a lot of communities have had bad experiences before, and so maybe are less likely to work with more traditional sector funding or things like that. And oftentimes, our folks in communities are really that bridge for a lot of people. One example I have is, I spoke with some folks about their benefits cliff situations. Then one of those women actually followed up with me two years later and said, “Well, I took that job and I ended up getting promoted, and I have an apartment now with my kids and everything’s great. And I’m still working with the organization that helped me, and now I’m able to help others.” And there’s so many examples of people stepping into help their neighbors and friends, and also just be able to be that connection to say, “Don’t be nervous about getting involved with something that might seem like, can you trust it?” So I think, again, that’s another example of the people as resources in those communities.

Governor Michael S. Barr

Yeah. I do think trust is absolutely critical and you need it in both ways. You need people to trust the things that are trustworthy and you need people to not trust the things that are not trustworthy.

Gabriella Chiarenza

Yes, of course.

Governor Michael S. Barr

So that’s, I think an essential skill that local community leaders can help people navigate so they don’t get stuck in a trap by taking on a product or service that doesn’t make sense for them, and they can use the products and services that will actually help them.

Gabriella Chiarenza

Yeah, absolutely. Well, we are getting to the end of our session here and I have so many more questions for you. But it’s been really great to hear more about all these things happening in communities and all of these ways that the Fed is really listening and trying to learn from what communities are doing and how that might impact the larger policy conversation. So I hope this will be the first of many conversations that we have about this over time as things change. I just wanted to ask you in our last few seconds if there’s anything that I didn’t bring up or anything that you wanted to be sure you mentioned about community development right now?

Governor Michael S. Barr

Well, I’ll just return to the theme that we were talking about at the start, which is, I think the community development function is so critical to the Federal Reserve system, to the work that we do on behalf of the American people. I think lots of people don’t know what the Fed is or what it does, but in local communities around the country, the Community Development Affairs staff are just doing great work on the ground, partnering with local organizations, and helping the economy to thrive. And that, I think, is just a critical part of what we do for the country.

Gabriella Chiarenza

Wonderful. Well, thank you, Governor Barr, for being here with us today on Connecting Communities. It’s really been a pleasure to talk with you. And as always, we want to say thanks to the regional partners and the community partners that we work with all the time who really keep us connected and keep us well-informed about what’s going on on the ground. Our colleagues in the districts can’t do their work without you, so thank you for all you do. We’re going to have a couple of very quick notes at the end here before we close, a few quick requests. You, our attendees, will get some survey information at the end of this. Please fill out the survey that you get and let us know what you thought of today’s session. That helps us bring you timely and relevant sessions in the future. Please, again, as I mentioned at the beginning, please check out fedcommunities.org.

This session will be there in about two weeks, the recording of this session, and you’ll also find many, many more community development articles and resources and data. Many of the tools we talked about today are there. It’s a first stopping point for all of our other work in the community development system of the Fed. So check that out. And while you’re there, please subscribe to our newsletter. I promise we don’t spam you, and we send a lot of good information that will help you connect with all of the community development work happening across the Fed. And finally, please check us out on social media if you’re out there.

We’re on LinkedIn, Facebook, and X, so you can find Fed Communities there. I think that is everything. And so thank you again, Governor Barr, for being with us today, and thank you to our attendees for attending. We look forward to seeing you at the next session. Please take care.