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MAY 16, 2000

Parting Words from the Fed's Friend of Small Business

Edward G. Boehne says policymakers are paying more attention to entrepreneurs


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An advocate for small business at the Federal Reserve? It sounds unlikely, but Edward G. Boehne, 60, the retiring president of the Federal Reserve Bank of Philadelphia, has been small business' man at the Fed for nearly 20 years, as detailed in the May 22 print edition of frontier. He recently spoke with reporter Karen Cheney. Here are some additional excerpts of their conversation for our online readers:

Q: How significant a role does small business play in policy debates?
A: Monetary policy is a macro-economic tool. It's not so much about having a policy for small business and another for large business. Each of the 12 Federal Reserve Bank presidents gives a report about the region during the Federal Open Market Committee meetings. During these meetings, I think a fair amount of attention has been paid to the New Economy and particularly smaller business. During the past five years, there has been a noticeable increase in the attention small business receives.

Q: What is the biggest risk to derailing the current expansion?
A: There is too much demand pressing on supply. That is why the Federal Reserve has been moving toward moving rates up gradually. And we will have to continue doing that until we feel the economy is in balance.

Q: Until recently, credit has been fairly easy. Is there any indication that defaults on loans to small businesses are going up?
A: Credit has been quite available. The competition between lenders has probably caused them to make some loans that they will come to regret. But that may have been a bigger problem a few months ago than it is now.

Q: There is a saying that the generals are always fighting the last battle. How much has the Federal Reserve changed its tactics for the New Economy?
A: The New Economy has been a major influence on Federal Reserve policy. If the Federal Reserve had been fighting the last war, the economy wouldn't have been expanding the way it has. Monetary policy has been remarkably attuned to the New Economy.


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