(This interview with TIAA CEO Roger Ferguson has been condensed and edited for clarity.)
What do you think of the frothy stock market, and should the many people who rely on TIAA for retirement advice watch the swings closely?
Well, to start with your second question, certainly my advice to the vast majority of our participants is you don’t need to watch the stock market closely every day. Our participants have many other things to do, as you well know. They’re dedicated to education, to health care, to K-to-12 education. So focusing on their jobs is much more important than focusing on the ups and downs of the market.
What’s accounting for the market strength and volatility?
Very low interest rates tend to almost always translate into rising equity markets for a variety of reasons. The other thing we’ve seen in this market is it’s been very driven by headline news. So concerns about COVID may drive the market down a little bit. Optimism about a potential cure may drive the markets up or a potential vaccine may drive the markets up. And the other thing that we’ve seen in this market, certainly the recent rally, is it’s been fairly narrow. Much is being driven by tech companies and other companies that are what I describe as sort of on trend, the kinds of companies that do well in this sort of lockdown, work-from-home environment.
Any other guidance for investors?
When markets are highly volatile, we try to discourage people from taking dramatic action, because we know that the average retail investor probably gets out at the low point and is very slow to get back in.
A low-interest-rate environment has reinforced one of the important premises around retirement investing and any investing, which is that it’s important to have a broadly diversified portfolio and to have a long time frame.
<span style="font-weight: 400;">I think the Fed’s response to the current crisis has been very strong.</span></span><span style="font-family: -apple-system, BlinkMacSystemFont, 'Segoe UI', Roboto, Oxygen-Sans, Ubuntu, Cantarell, 'Helvetica Neue', sans-serif;">
You’re a former vice chairman of the Federal Reserve. What is your analysis of the Fed’s response to the current economic crisis brought on by the pandemic?
I think the Fed’s response to the current crisis has been very strong. The challenge will be to figure out when and how to start to unravel some of this. But I think it’s too early for them to even start to contemplate that at this stage.
And on the fiscal side, would you give the same high marks to the Congress?
Yes. They got off to a relatively quick start compared to 2008, 2009, when Congress wasn’t sure they wanted to take any action. The stock market went down quite dramatically a day or two, and then that finally got them to take action. The early response from the fiscal authorities in the United States showed that they’ve learned lessons from the last time and were moving relatively quickly.
What is your view about another round of stimulus?
My view, as with many other things, [is] two things. One is it sort of depends on the prognosis for the virus itself and vaccines. Those seems to be off a bit. But I also take a cue from my former colleagues in the Federal Reserve who have been encouraging more fiscal stimulus. And I would trust their astute judgment of the U.S. economy.
You played a critical role in an earlier crisis: You were vice chairman on the day the planes struck on 9/11. The chairman [Alan Greenspan] was out of the country. What emotions and memories do you have of that day?
So many things well up. Obviously, first, the phenomenal tragedy and loss of life. I think it stands still as the largest single loss of life in a day in America. Secondly, though, I must say it was another chance to show that the Federal Reserve could move nimbly and appropriately. And it fell on me to be sort of the leader of the Federal Reserve system, not just on that day but for most of the week thereafter. And the third thing that wells up is how much teamwork was called for to make all that come together. And the fourth was the value of clear communications and fortitude in the leadership ranks.
What experience provided you with the wherewithal to step up as leader at that moment?
It was from many years having studied both the Federal Reserve and the financial systems. So a technical knowledge. And the fact that I had been fairly active across the system, had built relationships with the Federal Reserve presidents and others.
Was there anything in how you grew up, in your background, other than the technical knowledge that prepared you for that moment?
Well, you have to understand, I grew up—obviously I’m African American. I grew up in a very segregated Washington. I think at the end of the day, these stories are stories about resilience. I didn’t have a hardscrabble upbringing in the sense of deep poverty. But certainly we never had a lot of money. And just the resilience to learn, to plug, to keep moving forward, to not let the negative things that happened for a Black kid growing up in the ’60s and ’70s throw you off your mark. I think people rise to the challenge if they’ve had over time to rise to different kinds of challenges and haven’t always had it handed to them on a silver platter. If there was a silver platter in my house, I didn’t know where it was.
There has never been a Black Fed chair. Is that any sort of commentary about systemic or institutional racism in this country?
It’s actually commentary about a number of things. One is the fact that, indeed, this country has a racist history. I’m not saying it’s a racist country. We have a history of slavery. And then a history of Jim Crow and then a history of segregation. And separate but equal. So one of the things it tells us is that the training that was called for, for some of these jobs, was not so equally thread across the country. It’s also quite clear that some sectors, even to this day, have a lack of diversity. And the kinds of people who were selected for those jobs tend to come out of the financial sector. And that has been the case for a long time. It’s also quite true—and my friends Ben Bernanke and Janet Yellen have been working on this in the AEA [American Economics Association]—that the economics profession is, shall we say, not at the pinnacle of diversity either. So I think this is a reflection of a number of factors that go back to, from my standpoint, education, training, educational opportunities.
How much do you attribute the current political and racial climate to the current President?
I think where we are when it comes to race relations in America is tied to this 30- to 40-year trend of rising inequality. And my philosophy or theory of this is when you have a period of rising inequality—and therefore a sense that for many people the pie is sort of smaller while there are a few who are getting bigger chunks, for many it’s smaller—that is an environment that tends to lend itself to us-vs.-them kind of thinking. This rising racial tension, rising social tension—being an economist, I tend to go back to sort of economic roots as one of the things that drives that. The other thing that we’ve failed to explain is how greater equality actually creates a bit of a rising tide. There’s a McKinsey study on wealth equality … if the average Black family had the wealth of the average white family, the economy overall would be 6% to 8% larger. I would look deeper than a particular individual because I think we’re going to need to get to deeper solutions to deal with these fundamental societal issues that have emerged over the last several years.
How can companies do a better job on diversity and inclusion?
First, to be clear, it takes time. Secondly, it has to start at the top of the house. Third is all of this has to do with hiring and promotion. So what does that mean? You’ve got to have diverse slates of candidates. And insofar as you can do it, you have to have diverse slates of interviewers. Also, one has to look very, very closely at internal mobility. I see in many companies the ability to bring in lots of diverse talent and then sort of watch it fade away, depart, leave after three, four or five years. So it’s not good enough just to have a really good hiring process. It’s also a development process. And frankly, recognizing, in all honesty, that really good, diverse talent is a bit of a scarce resource. If need be, making sure you’re investing and, indeed, overinvesting to bring people along.
Returning to investing for a bit, I was just talking to a Wall Street friend who described the current bond environment as return-free risk. Do you agree with that analysis?
[Laughs.] Certainly one who has been watching the market for a long time could not have imagined the kind of very low interest rates we have here in the U.S. Or negative rates in other countries. And so we are in highly unusual times.
TIAA advocates for annuities for many of your investors. Why are they such a good investment, and why have they gotten such a bad rap?
I think many people don’t really understand annuities in the following sense. When you ask individuals if they want to have a guaranteed income for life or a personal pension or retirement paycheck, they almost always say yes, they do. If you said you wanted an annuity, they sometimes said no. So the first thing that we know about annuities is that it’s a question of framing, explaining what it is as opposed to using jargon. Secondly, to be fair, there are some annuities that have more bells and whistles, and maybe aren’t as good as the ones that we offer.
What first drew you to economics?
I fell in love with economics when I was 15 or 16. My mother was a public-school teacher in Washington, D.C., and put a huge amount of weight on education. My father was a mapmaker, a cartographer for the U.S. Army. He was a child of the Depression, and although we didn’t have much money, he was very interested in banking and investments. And while many folks would sit around the table talking about a variety of different things, my father and I would spend much of my formative time talking about investments, interest rates, banks and how the financial system functioned.
<span style="font-weight: 400;">If there was a silver platter in my house, I didn’t know where it was.</span></span><span style="font-family: -apple-system, BlinkMacSystemFont, 'Segoe UI', Roboto, Oxygen-Sans, Ubuntu, Cantarell, 'Helvetica Neue', sans-serif;">
Let’s talk about TIAA’s portfolio. How does climate change influence your view of your farmland holdings?
We want to own lands that hopefully are resilient to those kinds of big moves. I was talking the other day to the folks who oversee the wine grapes that we grow. And talking about the locations that we have to be less dependent on irrigation. We also were talking about ways to use recycled water appropriately to irrigate land. If one is going to be in the business of agriculture and managing agricultural lands, or leasing to others, you have to take into consideration how do you make sure you do that in a way that’s consistent with the possibility that one of your most important inputs, mainly water, might become more and more scarce.
Do you own wineries?
We don’t own wineries. We own vineyards that grow the grapes that go into a range of wineries. If you drink wine, you may be supporting the retirement of your favorite college professor.
Last question: Is there another profession that interests you? You ever think about if you were doing it again, what you would do?
There’s never going to be another profession other than economics. I joke, though, whenever I retire from doing this, the next thing I want to do is to be a mail carrier. The Postal Service as you know was created by Ben Franklin, and it is one of the great democratizing institutions ever. The thought that the average person could send a letter across this country for a predicted, specified amount—the stamp—was quite a revolutionary idea. In Europe, mail delivery, postal service, was something that was sort of for the elites. It’s one of those sort of thankless [jobs that] without which we couldn’t have the society that we have today. And people have often taken it for granted. The fact we have mailboxes on corners, and get letters delivered anyplace in the world, is frankly a miraculous concept. So if I had another job to do, that would contribute greatly to America, it would be to be a mail carrier.
BUSINESS BOOKS: My favorite business books are things written by Mike Porter. Right now, all my leadership books are biographies, learning how leaders have gone through things. There’s a recent book out about Abraham Lincoln putting him into his social context that is spectacular. [Abe: Abraham Lincoln in His Times, by David S. Reynolds.]
APP: Exercise apps.
EXERCISE: I am deeply into cardio. So 60 minutes on an elliptical.
Do you listen to news or TV when you’re working out?
No, I don’t. [Laughs.] I try to calculate calories burned per period of time. So it’s a bunch of mental math.