2 Fed presidents visit Northwest Arkansas, speak to area leaders

Two Federal Reserve District presidents discussed the importance of community banks and what the Fed and other federal agencies are doing to help them, such as through programs and events and reviewing policies and regulations.

On Friday (May 23), more than 100 area business leaders, including bankers, gathered in Bentonville for an economic outlook and a fireside chat with Alberto Musalem, president and CEO of the Federal Reserve Bank of St. Louis, and Jeff Schmid, president and CEO of the Federal Reserve Bank of Kansas City.

Musalem represents the Eighth Federal Reserve District, which includes Arkansas, and is a voting member of the Federal Open Market Committee (FOMC), which sets the direction of U.S. monetary policy. Schmid represents the 10th Federal Reserve District and is also a voting member of the FOMC.

Matuschka Lindo Briggs, senior vice president and regional executive of the Little Rock branch of the Federal Reserve Bank of St. Louis, moderated the fireside chat. She said Fed officials spent Thursday (May 22) touring the new Walmart Home Office and met with area community leaders in Rogers to learn about the Northwest Arkansas economy.

The two Fed presidents discussed how they prepare for FOMC meetings and how data and listening to economists and business leaders in their regions help guide their votes on the FOMC. Briggs said if people want to know what they’re talking about and what’s going on, look at the Beige Book. She said it comes out two weeks before FOMC meetings and shows what’s happening in each region nationwide.

“I love doing business in these two regions because I’ve always said that… especially in the banking business, you never get super highs in this region, but you never have to suffer the big lows,” Schmid said.

He said the Fed’s goals include maintaining a healthy economy, having strong banks and updating payment systems.

“Are we going to finally put the stake in checks and move on to much more efficient payment systems which the Federal Reserve has invested greatly in on your behalf?” Schmid hinted at a potential move that has been discussed for years.

They also discussed the importance of community banks and their investment in small businesses, which comprise a significant portion of U.S. jobs. Musalem said on average community banks have faced declining margins and return on equity. The banks have also faced pressure on deposits and lending.

“Investments in community banking have been challenged to some degree,” he said.

He said the Fed hosts a community bank research conference annually to discuss these issues, publish research and raise awareness about them. Each Federal Reserve Bank also has a community deposit institution advisory council to learn from community banks. Programs, such as Ask the Fed, allow banks to receive answers to their questions. There’s also FRED, which provides economic data.

Schmid said the value of banks is their relationships with people and businesses, and “the ancillary of that is just helping build communities.”

He said the Dodd-Frank legislation in the aftermath of the Great Recession “created a lot of burden because that was so harmful what happened in ’08, especially the housing business, that we’re going to have to really take a little bit of reflective look back and say, ‘OK, how do we better align regulatory structures? How do we better align the relationship between banks and supervision?’ I think those are all conversations that the Federal Reserve is active in and very good at.”

He said bank supervisors need to address mortgage lending and mortgage servicing, readdress the Community Reinvestment Act “and see what are the things that community banks are automatically doing that they should get credit for… Then what can we do to stimulate further credit making and capital flow through that community bank ecosystem?”

Musalem and Schmid also discussed the challenges that businesses in the area face, including uncertainty.

“Management teams are having to exert a little extra effort in terms of managing this uncertainty,” Musalem said. “But… that’s what makes a good management team a good management team. I have confidence that throughout the district and throughout the U.S., management teams will be able to manage for this uncertainty, but there is a lot of uncertainty facing them.”

He said he’s carefully watching for the expected rise in input and outputs for consumers and businesses because the Fed doesn’t want short-term inflation expectations to become long-term inflation expectations, “which would make our job harder in terms of achieving price stability. We’re focused on not allowing that to happen.”

ECONOMIC OUTLOOK
Cortney Cowley, assistant vice president and Oklahoma City branch executive of the Federal Reserve Bank of Kansas City, provided the economic outlook, focusing on Arkansas and Oklahoma.

“There’s some good news, and also a lot of uncertainty out there,” Cowley said. “But overall, what we see in the hard data, so things like job growth, overall growth is very strong both in the U.S. and Oklahoma and Arkansas.”

Much of the growth in Arkansas and Oklahoma is in education and health care. She said input costs for most businesses have risen, and that inflation and costs ”have been the most difficult in the current economy.” Homes have become less affordable for first-time home buyers, “particularly in scenic areas” like Northwest Arkansas.

Cowley said labor force participation rates have been challenged in Arkansas, but they’ve improved in Oklahoma because labor force participation increased significantly in Native American communities from 2021 to 2024 and more people entered the workforce following the COVID-19 pandemic. In those areas of the state, poverty declined and employment rose.

She said one key difference between the states is energy production, which is greater in Oklahoma. Arkansas has a greater share of manufacturing, especially for food.

Compared to the United States, Arkansas’ job growth has been stronger in finance and real estate, retail and manufacturing. She said manufacturers have faced higher costs. Prices are rising for their inputs, and their output prices are starting to rise, indicating that costs are being passed on to customers.

For the services sector, she said input prices have risen more sharply than outputs, indicating that service firms are not as willing to pass on some of the costs.

Cowley said the agriculture industry in the Eighth and 10th Federal Reserve districts have weakened because of row crop production and lower crop prices amid high input costs for farmers. She said some of the exceptions include cattle and poultry production.

“There’s still been just very strong demand both domestically and globally for chicken, particularly the production of broilers, which makes up a very large share of the agricultural economy of that poultry component in Arkansas,” she said. “So those areas are very strong.”

Compared to Oklahoma, Arkansas has a greater share of row crops, especially soybeans, rice and corn, which have faced challenges because of the lower prices.

Cowley said the commercial real estate industry has recently “turned around,” but industry contacts are more concerned about higher costs than interest rates. She said the housing supply continues to be tight, and home prices continue to rise. However, the price increases have moderated. Conditions are poor for low- and moderate-income households, but they are expected to improve, she said.

“Economic mobility, finding work has been relatively easy, but… other conditions like business operations, access to credit, financial stability have been very poor.”

Excluding health care and credit access, these conditions are expected to improve, she added.