Sunday, February 29, 2004

Fed's Pianalto plays regional role

Bank president works with Greenspan

By M.R Kropko
The Associated Press

CLEVELAND - What Sandra Pianalto says and does can shake the financial world, from the stock markets to the amount of a mortgage payment.

The president of Federal Reserve Bank of Cleveland on Jan. 28 cast her first vote as one of 12 members of the Federal Open Market Committee, the select group with Alan Greenspan as chairman that guides banks on which way interest rates go.

Changes in the federal funds rate - the overnight interest rate the Fed sets for banks - can affect other short-term or long-term interest rates, foreign exchange rates, the money supply and credit.

Pianalto's duties also include making public appearances in the bank district where she grew up, gathering information and explaining what she does to help form the nation's monetary policy.

Pianalto, 49, has been president of the bank - which covers Greater Cincinnati - since 2003, having served 20 years before that in a variety of roles there.

While visiting a school in November, she was surprised to end up signing autographs for youthful admirers.

"I feel like LeBron James!" she exclaimed, as schoolchildren crowded around her. She told them both she and James, the top pick in last year's National Basketball Association draft, went to the same high school in Akron, separated by about three decades.

John Bryant, founder and chairman of Los Angeles-based Operation Hope Inc., was with Pianalto at Louis Munoz Marin Middle School and persuaded the youngsters not to leave without getting her autograph.

"She wouldn't have been there in that classroom if she didn't feel in her bones it was the right thing to do," Bryant said. He's met several Federal Reserve presidents as he travels the country promoting his nonprofit group's campaign to improve financial literacy among city schoolchildren.

Usually, Pianalto is much more reserved, as are her audiences.

Appearing before college students and business organizations, she has been guarded not to reveal her ideas about the direction of interest rates.

"That's gotten a lot of interest," she said. "It seems that every FOMC has different challenges."

Pianalto's vote in January supported keeping the federal funds rate at a 45-year low of 1 percent, where it has been since June.

People hunting for a home and needing a mortgage, or needing a car or small-business loan, may not realize FOMC decisions can influence the amount of interest they would owe each month, or how much is expected from savings accounts. Mortgage rates nationally averaged a four-decade low of about 5.2 percent last June but have since risen to about 5.7 percent.

At each FOMC meeting, members approve a statement, and even slight variations in wording can shake financial markets.

The January statement dropped wording the committee had been using since August that it would keep the federal funds rate low "for a considerable period." Instead, the FOMC said it believes "it can be patient" in deciding to raise the rate.

The Dow Jones industrial average, which had been in positive territory before the Fed's afternoon announcement Jan. 28, lost more than 100 points in late-afternoon trading that day.

Michael Barnes, a professor of global business studies at Kent State, said the Fed is limited in what it can do to further stimulate the economy, since the federal funds rate can't go much lower.

"The best they can do at the moment is maintain a steady course and keep their eyes open for possible signs of inflation creeping back into the economy," he said.

Michael Barnes, a professor of global business studies at Kent State University in Kent, Ohio, sees Pianalto as a strong spokeswoman for her district, which includes Ohio, western Pennsylvania, eastern Kentucky and the northern panhandle of West Virginia.

"She is very aware of the difficulties we face, in northeast Ohio in particular," he said.

Pianalto also serves on several boards, including the Rock and Roll Hall of Fame and Museum. Director Terry Stewart said she's a rock 'n' roll fan.

"She's been the sort of high quality board member you would expect of someone in her position, but she also really enjoys the music," he said. "She likes the energy."

Pianalto, whose vote rotates each year with the Fed president in Chicago, sees her role mainly as an evaluator who explains at meetings how the economy is performing regionally.

The region, which has a manufacturing base, should adapt to a changing jobs picture, she said.

"We're going to continue to make things in this country and in this region. What we make will be different. More of what we make has a technology component," Pianalto said.

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