NY Fed president John C. Williams to Long Island: Build more homes, train low-wage workers, expand child-care options

Long Island’s leaders should accelerate the construction of apartments and houses with varying price tags to help address the area's high cost of living, expand skills training for workers, and increase the number of child-care slots so that parents can take full-time jobs, a top Federal Reserve official told Newsday.

In an exclusive interview during his daylong tour of local businesses and universities this week, John C. Williams, president and CEO of the Federal Reserve Bank of New York, spoke about potential remedies for the Island’s affordability crisis, how interest rates are set and his passion for video games.

The Island is part of the bank’s district, which encompasses New York State, Puerto Rico, the U.S. Virgin Islands and portions of New Jersey and Connecticut.

Williams joined the New York Fed in 2018 after serving as head of the Federal Reserve Bank of San Francisco. He is the No. 2 person, after Federal Reserve chairman Jerome Powell, on the Federal Open Market Committee, which sets short-term interest rates. The interview has been edited for clarity and length.

In setting interest rates do you and your colleagues on the Federal Open Market Committee think about how your decision will impact the average person?

Absolutely. There's quite a bit of conversation because we have 19 participants in the FOMC meetings. There is a very rich discussion about what's happening in the economy and how that affects people. Obviously, high inflation has big effects on people ... But also thinking about how do we use our policy tools to bring inflation down and do our very best to achieve both of our goals for maximum employment and price stability.

There's no question that sustained high inflation would be extremely damaging to people throughout the country, especially those who are least able to protect themselves against that. One of my goals is to see inflation come down as quickly as possible in the context of a strong economy and then we can bring interest rates back to more normal levels.

What's the outlook for Long Island's housing market in the next couple of years?

As an economist, I'm going to just say that when prices are high, rents are high, it's because demand exceeds supply. Strong demand for housing is a sign of the strength of the economy, the rebound of the Long Island economy. Demand for housing is higher than it was five years ago. People are working more from home or doing hybrid work. So, space is at a premium. I think that's going to be with us for a while.

To me, the big issue is what happens on the supply side. How do we get more supply out there? Whether it's affordable housing or all types of housing, and hopefully housing that's near transportation and makes sense more generally. In a way [the issue] is a sign of the strength of the demand for this region, which is good. But it's also a sign that people really need to address the supply of housing.

This shortage is partially due to people not wanting to put their homes up for sale because they have a low-interest mortgage and will have to replace it with a higher-interest mortgage when they buy a new house. How can this problem be addressed?

That's absolutely true. We had extraordinarily low mortgage rates just a couple years ago. We were in the middle of a pandemic and interest rates were low here and around the world, and that drove mortgage rates lower. A lot of people refinanced and bought homes. They [now] can feel locked in with that because it's a very favorable advantage to have.

That is a very real issue, but hopefully an issue that will be resolved as time passes; I'm not making a prediction, but eventually as interest rates come down to more normal levels. ... I think a structural increase in [housing] supply is an important part of this equation as well. 

Long Island is losing young professionals and families to lower-cost regions. You lived for many years in San Francisco, another high-cost area. What can be done to make Long Island more affordable?

Long Island does have really strong public transportation and [therefore the] ability [for people] to get to jobs. That's a positive and an important part of it. But I do think, going back to this issue [of housing], if you're thinking about people who are starting out in their lives [it's about] making sure that there's a housing supply that meets their needs.

Long Island has a very high percentage of owner-occupied housing and that's a strength of the region. But at the same time it's also telling you, there's not a lot of rental housing available. We do hear anecdotally and I think we see it in the data too, that a lot of people starting out are really looking for rental and saving some money up for later decisions, maybe to buy a house at some other point, or maybe not. We're also hearing about people who are in retirement age who really don't want to have a big house. They want to move down to something that is rental, which is a little bit more affordable.

Besides affordability, what are the biggest challenges facing the Long Island economy and how can they be addressed?

One of the biggest employers on Long Island is health care, the health systems. That's an area where the financial challenges are pretty severe. During the pandemic, a lot of hospitals saw their revenues go way down but then their costs go way up. And although we're past the pandemic and we're seeing people come back and get the care that they need, the costs are still quite high. Given that health care is such a big part of the economy here, its financial strength is very important.

The other thing that's really interesting is this movement in the United States to bring manufacturing back, the reshoring of things. There's definitely manufacturing here that's very successful and has been for a long time. Given its high costs in terms of housing and things, how can [Long Island] attract higher-wage occupations and businesses like the ones who are here that want to really succeed in manufacturing? [The region] has, relative to the country, a low share of manufacturing.

Income disparity, particularly among racial groups, only got worse during the pandemic. What can be done to narrow the gap between the haves and the have-nots on Long Island?

What's very important for this is a strong economy, a strong labor market, one with low and stable inflation. We saw that in the 2018-2019 period where a lot of people who hadn't seen wage increases or real income increases for a long time — [now] we're seeing those. A strong labor market, a stable labor market is a good foundation. It doesn't address all the issues you mentioned, but it's a good starting point.

The other issues that I think are really important are education and investments in skills [training for workers]. We definitely hear this from [local] employers that there are jobs and they are well paying jobs. We need to invest more in people in terms of skills.

Another big challenge that we have, and we saw in the pandemic and it was before the pandemic, is the issue of child care and the affordability of that so that people can get into the labor force... I think there is this opportunity to say, Okay, people are back to work, the economy's strong, how do we invest in this future? How do we achieve the economy's potential because there's a lot of people here who aren't able to get the kind of education or skills or job experience that will allow them to reach their potential.

What's your view of the long-term viability of regional banks, such as Flagstar Bank, which is based in Hicksville. It and others are weighed down by depressed commercial real-estate values. Should depositors be concerned?

We had a few banks last year that were kind of extreme outliers and struggled and failed. But overall the banks are very strong and resilient. Deposits up to a limit are federally insured and people should be 100% confident about that. 

There are challenges for regional banks.

One is the higher interest rates, [which] clearly affect the cost of the funds: how much banks pay for deposits versus what they're earning on the loans and investments that they made. That was a challenge we saw in 2023 and banks had to adjust to that, and I think they have.

The second is commercial real estate exposure and some community and regional banks have exposure. The regulators are focused on making sure that these banks manage those risks appropriately. So, I'm confident about the banking system.

There are some banks that definitely are going to see profitability very challenged for some time because of some losses that they have and because of decisions they made. That's just part of what happens in businesses. It's not something to be worried about more generally.

Tell me about your interest in video games. What's your favorite one?

My kids encouraged me to do this and then they would buy me video games, and at times make fun of me while watching me play them. It was a kind of bonding thing... There are some activities that just let you relax and maybe chill out, if you will, and not focus on all the important stuff. Video games are a way to do that as long as they don't interfere with other parts of our life.

There's a whole set of games that are designed to be extremely hard. They're designed to teach you to fail over and over. I've learned that they were designed exactly for me because I fail at them a lot. It's actually kind of a good life lesson. Life is about things not always going the way you plan and not always being easy. I find the video games give me that little bit of training. It's okay to fail seven times. I just wish the screen didn't say, 'You died' in big print. 

The game that I'm playing these days, it's called Elden Ring, which is one of the biggest video games that's around. They're about to drop the big second edition of that in June. I've got to find time between the [Federal Open Market Committee] meetings to make sure I can really devote myself to that.

By James T. Madore

james.madore@newsday.comJamesTMadore

James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.