Good afternoon. I'm Kate lions and on behalf of everyone at Lyons companies. Welcome to the 20-20 economic forecast. This is the 14th year that we've held this event. And we do it to draw attention to the work and the accomplishments of the Center for Economic Education and Entrepreneurship at the University of Delaware. Before I turn the mike over to Carlos Asada, Director of the Center, I want to take a moment to tell you a little about what's been going on at Lyons companies. It's been just under two years since I took on the role that I have today. And we've had plenty of challenges during that time. Through all of this. We've received the unflagging support of our clients, our partners, and our advisors, and support for me and the wonderful people I worked with at a great company that my husband built. So the results are a net lions and 2019 was an outstanding year for us. In fact, Q4 was the best in the history of our company, both in profitability and new business. I want to take a moment to thank you all for supporting us and taking that leap forward with us. And I also want to thank **** happy for joining us today at the last minute to fill in for a speaker who was unable to be here today. It's our great pleasure to have you. So carlos, you're next thank you, gate. And thank you for your support. The James B. O'neal Award for excellence in economic education and entrepreneurship was created to recognize an individual who has made substantial contributions to promoting economic financial education and entrepreneurship education. The selection committee includes the Dean of the Lerner College of Business and Economics, the chair of the Economics Department at UD, the chairman and vice chairman and one more bit board member of the Council on Economic irrigation. Last year's recipient, Amy walls or myself this year's recipient, is committed to the understanding that children can and should begin learning early about earning, saving, and managing small amounts of money. Bank gets cool, the meaningful economics competition and did certainly saved. They are all engaging programs that introduce and help foster the growth of wise financial habits. Our state bank commissioner personally volunteers do it. Then in-school, beg openings, deliberate classroom lessons, and juts to the competition's. Additionally, for the financial literacy education fund that he's offers, manages. He also oversees the allocation of critical funding that is needed to be able to teach financial literacy in the scores in Delaware. As you can see in your program, Robert has serve and there are a number of governors at clearing negation of his effectiveness, loyalty, and interesting serve in our wonderful state. In fact that I gave to you these seven years ago. And my first event was one where he was there helping think teachers for the work that they do. Bank a school program. He's many contributions have been instrumental in furthering the mission of the EU. The Center for Economic Education and entrepreneurship, helping us better prepare students for the financial opportunities and challenges that lie ahead. We plot his passion for these work and are very happy to formally recognize Delaware State Bank Commissioner Robert Glenn as the 2020 recipient of the James B. O'neal Award for excellence in economic education and entrepreneurship. So I think we're going to take a picture. >> I've Thank you so much for this tremendous honor. I'm so grateful for this, especially considering the outstanding work on economic education done by the University and the Center for Economic Education and Entrepreneurship. I've been the state bank commissioner in Delaware for about 20 years, and financial literacy and economic education had been a very important focus for us. Our agency has been very fortunate to be able to partner with the University of Delaware in the wonderful programs that you sponsor. Bank at school with more than 80 partner schools throughout the state. Meaningful economic competition, which also has participation from many, many schools here in Delaware and teach children to save day, which brings hundreds of bankers together with teachers and students at the schools. The University's Center for Economic Education and entrepreneurship also does so much to support teachers in our schools with financial education, curriculum development, and training programs for the teachers. Everyone says that financial literacy is so important for people to learn when they're young. And the center is providing a terrific benefit to everyone in Delaware with these programs through the state's financial literacy education fund, which is administered by our agency. We've been able to award two to $3 million in grants over the last ten years to many educational and community organizations in Delaware. And I'm honored that we've been able to support the Delaware Center for Economic Education with grants that help the center continue to offer these programs. So thank you again for this wonderful award. >> And now I have the pleasure of introducing and asking him to come up. Tim lyons, who's vice president of Lyons company. And this is a little bit out of the program order, but I also would like you to please join me in really thinking the lions family for the EFR and the amount of work that they put together. We know that the last couple of years have been challenging and yet you've come out stronger if both at the business level and personally. And so we want to thank you for for doing this and thank you to him. Thank you, Carlos. So it's my pleasure to introduce Nix Kerberos, our moderator, Nick is the Chief Economics correspondents for The Wall Street Journal and is based in Washington. He is responsible for covering the Federal Reserve and other major developments in US economic policy. Prior to his current position, Nick covered the Treasury Department fiscal policy and broader economic, labor and labor market issues. Before that, he wrote about US housing and mortgage markets reporter based in New York. His coverage included, included the government's response to the foreclosure crisis and the takeover of finance companies, Fannie Mae and Freddie Mac in 2008. Nick contributed to the journals president presidential election coverage and traveled with the campaign of then Senator Barack Obama. He joined, he joined the Journal in 2006 and is a graduate of Georgetown University. Alright. Thank you Tim, and good afternoon everybody. Thanks for joining us this afternoon >> we will start with prepared remarks from each of our three speakers, and then they will join me up here on stage for a moderated conversation, at the end of which we will take questions from the audience. So to get us started, I would it's my honor to introduce Patrick Harker, who is the president and CEO of the Philadelphia Fed as many of you know. He took that job in 2015 after serving as the president of the University of Delaware. Before that, he was Dean of the Wharton School at the University of Pennsylvania. So let's please welcome President Harker. Well, good afternoon, everyone. Good afternoon. And it's really a pleasure to be back here with you on my old stomping grounds here at the University of Delaware, kinda feels a little bit. They're like Groundhog Day, but without Sonny and Cher playing in the background. Gender thing that feels like Groundhog Day is the usual disclaimer that I and my fellow Fed officials say over and over and over again, again without Sonny and Cher in the background. The views expressed today are mine alone and do not reflect anyone else in the Federal Reserve system or on the federal open market committee? I have a room of witnesses. You're my witnesses there, so I can't get in trouble. So with that out of the way, let me outline my remarks today. I'll start with an outlook on the economy, which I know takes greater significance this year for some people. Since I am a voting member of the federal open market committee this year, my outlook for the economy, specifically for the labor market, ties into the final section of my remarks today. Workforce development. In my view, with the labor market the tightest it's been in decades. Now's the time to create new approaches to how companies hire, train, and retain employees. And how we in the United States can create career paths for all people who want to work. So let's start with the economy overall using some technical language. I think the economy is pretty good. We're in pretty good shape. We are in the longest economic expansion on record, and I see growth returning to about 2% this year, a view that I think is pretty widely shared Fridays employment report showed the labor market began this year, 2020 on the same positive trend that showed last year. In 2019, we added to 225 thousand net new jobs in January, better than the monthly average of a 175 thousand for all of 2019. In addition, hourly wages increased 3.1% from last January, and the unemployment rate across the country stood at 3.6%. Now these are great numbers. At some point we will return to the trend are creating about a 100 thousand net new jobs per month now to many and to some in the media every once in a while, that number sounds disappointing. It's not, it's only disappointing if you compare it with the stronger monthly gains. We have been seeing recent ears, but it's important to recognize that a 100 thousand net new jobs per month, that's more than enough to keep pace with the expected growth in the US labor market. So refined at a 100 thousand above that, a really good. So that's one reason why I expect that the unemployment rate will stay below 4% for the next couple of years. The health and labor market, especially when it comes to paychecks, is my key to my economic outlook. Since consumer spending consist of a roughly 70% of the US economy, the news in general continues to be good for the consumer sector thanks to the lowest unemployment rate in 50 years and growth of wages. Consumers are upbeat about the economy. Consumer confidence as high, an optimism that optimism should support household spending this year. Another support to consumer spending this year is the prospect of more homeowners refinancing their mortgages. Research done at the Philadelphia Fed's Consumer Finance Institute, or CFI, shows that lower rates in 2019 resulted a large number of borrowers who are in a position to refinance their residential mortgages. Now why does that matter? Mortgage refinancing fuels consumption in two ways. First, homeowners are able to lower their monthly payment, house payments, freeing up that money that can be spent somewhere else. Second, homeowners may choose to extract some home equity by using a cash-out refinance. This also provides money for other consumer spending. Our research at CFI shows that in September 2019, when a 30-year fixed rate mortgage average 3.61% About 19% of all active mortgages were refi, candidates. The bank's research supported by industry analysis suggest that with no change to mortgage rates, about 60% of borrowers will probably refinance this year. And over the next two years, we would expect an estimated $11.2 billion in added consumption across the economy from this refi, activity. On an individual level, an average home owner would have about $2 thousand to spend an extra consumption within the first year after refinancing. Now that's a nice lift at any household budget. So my positive you about concert the consumer though contrasts with concerns about business investment spending on new plant and equipment and intellectual property is lagging and the uncertainty attached to fiscal and other policies has continued to hold spending back. So to have international developments including global slowdown, trade uncertainty, and rising geopolitical tensions. Now it's too early to say what the impact of the spread of the coronavirus will have on the global economy. But the negative effects on the Chinese economy and international travel are definitely something that we're watching. And the spillover potentially to the US economy. So that's my view on the labor market and economic growth. Now let me flip to the other side of the Fed's dual mandate inflation. We have not quite met our 2% inflation target, but I believe we are on track to get there now. While the process that I admit has been a very slow one, I believe that inflict the inflation rate will rise to meet our goal. So against this backdrop of a generally positive economic outlook and expectations that inflation will eventually hit the Fed's 2% target. I come to the part, everybody really seems to care about rate, right? As you know, at the January FOMC meeting, the committee decided unanimously the hold the Fed funds rate target stable didn't the range of 1.15 to 13 quarters percent Mountain View right now is that we should hold steady for awhile. Let's hold steady for awhile. Watch ****, developments in data unfold before we take anymore action either up or down with respect to the fed funds rate. So that's the national economy. So let's turn to Delaware in the Philadelphia region. There, the economic outlook is more myths than international won. Over the past five years, Delaware employment grew less than 1% per year, which is lower than the 1.5% posted for the nation. In recent months, however, Delaware job growth has picked up to a rate that's similar to the national average. On a more granular level, northern parts of Delaware seem to be doing better than southern parts Delaware. Its unemployment rate was 3.9% in December, slightly higher than the national figure. And unemployment again, in the southern regions tends to be higher. Delaware is job growth, though has been reasonably broad based with the usual suspects such as the finance industry in education, in healthcare, often referred to as he, eds and meds, leading the way. The professional business service sector has seen a slight decline in the past year. But this could be due to reduction in temporary service jobs, which shows up in the business services sector. So if you think about with the local labor market, remaining tech companies are shifting temporary in part-time workers into permanent full-time jobs, which results in a reduction of employment in the professional and business services. So that's not necessarily a bad thing in abroad. Or fill up your metro area, which of course encompasses parts of Delaware, Pennsylvania, New Jersey, and Marilyn. Job growth has been running around 1.5% until several years ago, when it slowed to 1% annually. In general, the Philadelphia metro areas job growth since the last recession has outpaced that of, for example, Pennsylvania for the most part, but it's been below that of the Nation during the same period. So like Delaware, the Philadelphia metro areas, job growth has been consistently broad-based for the past several years. And again, thanks to net new jobs gains in Ed's image in professional and business services. The local labor market is also feeling the direct impact of e-commerce versus bricks-and-mortar stores. We have had a decline of retail employment, but we are seeing continuous growth in transportation and warehouse employment. As for the jobless rate, the Philadelphia areas rate stood at 4.1% in December. Now this is lower than the state average, but higher than the national average. In recent months, we have seen a slight uptick in the regions and the state's unemployment rates. But again, this is not necessarily a bad thing. This is likely due to an increase in the labor force participation rate at the state level. During that same period, as more people enter the labor force, the unemployment rate will temporarily increase until they find jobs. And the fact that more people are entering the labor force, again, that's a good sign. This very tight labor market that we're seeing locally and across the nation have put employers in a challenging position that just simply wasn't evident in the years following the great recession, companies report difficulty in filling open positions, and many of those openings remain vacant for a very long time. The difficult recruiting environment is also one that is likely to stay with us for some time as demographic trends indicate that the workforce will continue to age. Sorry, boomers were age and in the labor force relative to the population, as a result, will continue to decline. This challenge though, and it is a real challenge for companies right now. You can also view it as an opportunity. And those that successfully invent new ways to attract workers will and I believe, enhance their chances of success. Now break now is that there's a chance to rethink the same old, same old ways of building a productive workforce This can perhaps be done by rethinking job requirements or additional ways of training. Let me mention one such innovative program that's begun in Philadelphia is a public-private partnership to train workers in Philadelphia. This project was actually developed by our banks economic growth and mobility project in concert with Philadelphia works and Comcast, that seeks to gain better understanding of what programs and strategies expand opportunities for individuals who live in low and moderate income communities. The pilot program, which was announced last fall, has Comcast providing the upfront investment for training workers to master the skills needed by the this part of the new financial model. Comcast is committed to paying for outcomes once they are achieved, such as staying on the job for six months. Philadelphia works is also engaged in this. They are putting up the seed capital to make this happen. They provide the training that they're making the upfront investment. The model also create what I think is very important, a better feedback loop between employers and this workforce board to make the program more effective and responsive to changing employer and employee needs. So where do the benefits? This program is helping Comcast's find workers in a tight labor force, labor market. And let me assure you this tight labor market we hear, we see in the data we hear from contact after content from all of you is not imagined. Economist at the Philadelphia Fed had been looking into, for example, the amount of time needed to fill positions in the metro area and metro areas across the US. In our region, it took 41 days on average to fill a position. Now contrast that to the national average, or 37 days that put philly, this region, 47th out of the 50 largest metro areas, 47 out of 50. That's hard to say exactly why it takes longer to Philadelphia than in other places. But one thing our researchers noted is that job ads in the filling metro area ten to list slightly higher education requirements than other metro areas. This underscores the need to switch gears, switch gears and investigative programs such as I, one I just mentioned between Philadelphia works and Comcast could be adapted to meet the challenges that we're all facing, the challenges that you're facing. But here's another finding of the study that I find very interesting. The skills in highest demand in the Philadelphia region and across the US are not dependent on a four-year college degree, but instead are soft skills such as communication, customer service, teamwork that could really indicate a rethinking of job requirements. Job changing those job requirements that could help counter this tight labor market. And that's a prevalent feature of the US economy. It's true across the economy. Sometimes that means a college or graduate degree is needed for a particular job, but sometimes it really isn't. This leads to another issue about workforce development. Initially, I've championed for a few years now. Now this might be strange coming from me, the former president of the University of Delaware and a lifelong academic. But not every high school student needs to go to college or directly to college. And that would be even truer if there were greater innovation, recruiting, and training. Now to reiterate, the difficulty of finding new employees is likely to be a feature of the labor market for some time to come. Because demographic trends are not short run fluctuations. Innovation in attracting and retaining workers is likely to be one of the key aspects of governing success for your organizations and for the country. It expands a poll workers helping to create better matches and a more productive workforce. And importantly, it opens pathways for workers. It opens pathways for people who frankly have felt left out of this economy. Now, of course, workers without a college degree still need to find well-paying jobs. As I mentioned earlier, my positive outlook for the US economy rests on the consumer sector. We need everyone who wants a job to be able to find a well-paying and sustainable career path. So research, researchers within our community development and regional outreach department have identified several employment categories that pay above or at the national annual median wage, but do not require four year college degree. These are jobs that lift people into the middle class without needing, at least initially, if at all, a four-year college degree. We call these jobs opportunity occupations because it's exactly what they are. They provide opportunity for people to enter the middle class. To my colleague Keith wardrobe, work with researchers from our fellow fed, Cleveland Fed, to catalog these occupations by looking at educational requirements in job postings and hourly wage data from the Labor Department. Now this list is varied. This list of opportunity occupations varies from registered nurses to truck drivers, retail sales supervisors, carpenters, patrol officers. We can go down the list. We know that these by the way, both nationally and we can tell you what they are and filling metro area, we can tell you what they are in the Scranton, Wilkes Barre area, et cetera. We know what these jobs are. So whether people like whether people like dealing with people we're working with their hands, or whether they're interested in careers in health care, construction, transportation, or sales. One of the many opportunity occupations may fit their idea of what a good job is. Now to be clear, many of these jobs require on-the-job experience or some type of training after high school. And some positions obviously require a college degree. But nationally, Keith and his colleagues calculated the 21.6% of jobs in 2017 could be classified as opportunity occupations in the Philly cam to Wilmington metro area, the share was slightly lower at 20.1%. That said, one in five jobs. There's an opportunity occupation. These opportunity up occupations, these occupations offer workers without a college degree to be, to join this economy, to have a chance of joining this growing economy and for day in their families to become financially secure. Giving more people that opportunity, the opportunity to participate in the economy obviously strengthens our economy because more paychecks support more consumer spending. It's a win-win situation for all of us. Indeed, emphasizing skills rather than degrees might help reverse a troubling longer-term trend in the US economy. And that is the high number of adults who are not in the labor force. The share of working age adults who are participating in the labor force, which includes those who are employed and those who are unemployed but actively looking for work came in at just 63.1% in 2019. And that's down from 65.410% years ago. So what, what does that mean? What that says to me is that the US is missing out on potential these adults could bring to the economy. Now this will no doubt require innovative thinking and new ways of investing in the workforce. But the pay off if we do this right, is likely to be fairly substantial. In, I know that the popular notion it is, is that artificial intelligence and robots will make workforce development unnecessary. We're all going to be working for the machines. But let me return to our study about the time needed to fill a job. Think about those job openings. And I mentioned that the occupations that are hardest to fill include again, things like Registered Nurses, retail store managers, physicians. These are the jobs least at risk of automation. They require our uniquely human skills that can't easily be replicated by technology. Employers can't expect these jobs to disappear anytime soon. And that is why I believe it is imperative for employers to invest in those unique humans who can develop those skills. There's communication, teamwork, the service skills that will get the job done not only for them, but for the country as a whole. Thanks. Thank you so much. All right. Our second speaker this afternoon who has graciously subbed in and does not and your program is Dan happy, who is the senior vice president and director of policy at the Center for the study of the presidency and Congress. So quiet last week for you at the center, I'm sure, and we're happy to have him here today. His centers, presentations and research include cybersecurity, technology policy, international relations, government procurement, and political reform initiatives >> And I will go ahead and introduce Michael since he's joined dan up here. Michael FAR is the CEO and founder of far, Miller and Washington. He's the chairman of the investment committee and is responsible for overseeing the day-to-day activities of the firm. Prior to starting Miller foreign Washington, he was principal with Alex Brannon sons and he is also based in Washington DC. So I will turn the next 15 minutes over to Dan. Thank you so much. Thank you. And it's good to be here. I was I got the call at nine AM that I was going to be the under study here, so I I don't have prepared remarks. Thank you. But Michael is decided we decided we'd work better as a little bit of a conversation. We actually do this as a podcast, weekly podcast, the forecast. So to give you a taste of that. And also a week in Washington where, as was mentioned at the Center for the study of the presidency and Congress, we study it so you don't have to. And we'll look at the, the scene here domestically as well. Some of the issues we're tracking internationally that affect this economic outlook. I'd warn Dan that I was going to ask him some tough questions this morning or this afternoon. And we're going to end with his conclusion >> for a year from now. A year from now, who's going to be in the White House? What are the houses of Congress going to look like? And other changes that he may see in his Crystal Ball, starting with a Washington update. And then we're going to go to a little bit of the State of the Union electoral college calculus. Want to make sure we cover Iran, North Korea, China, and the coronavirus. All from his political expertise at Dan's, his studies in China, Securities Studies in China and work on Capitol Hill mean, mean really that he is in the catbird seat? >> Comment on all of these things. So dan, not much going on in your world? We we had a Iowa caucus and we have a New Hampshire primary. We have Pete and Bernie and the lead. What do you make of all of that? Well, after the the mess in Iowa and certainly it just as a reminder that you can't take technology and just bolted onto a 19th century process and assume that things are gonna go swimmingly. What you see there, I think is two paths for the Democratic Party. Bernie is very much following a 2016 pattern. I think it's almost a repeat of what the Republicans saw on 2016, where trump continued to get a plurality of support, but the rest of the Republican Party split the majority. And that was the pathway that Trump had in 2016. And Bernie is doing much of the same with an equally fired up base on the Democratic side. In 20-20, Buddha, Judge, looks a lot more like the Democratic Party that retook the House in 2018. He's wanting to build that coalition of suburban voters. He looks at data where you see educated, college educated voters leaving the Republican Party, insignificant numbers, demographic trends moving away from the Republican Party. And he thinks that's a sign that outside The activists base of the Democratic Party that there is an appetite for a much more centrist, fresh faced, but also in a way, an interesting dynamic of being both fresh face but a return to normalcy in the presidency. It's not just young guy versus old guy. Well, there is a certain amount of that. There is that generational divide. Although it's funny, the older voters support Buddha, judge, and the younger voters support Sanders. It's a good point to look at. It's about 35 years of age and it's a great cutoff because if you're 35 or older, you graduated into a labor market where Lehmann Brothers existed, everyone else since then. So if you're 35 or older, you tend to see the poll data, 60%, 60-70 percent support capitalism, about 20% support Socialism, and the rest support a hybrid or undecided younger than 35, those numbers flip entirely and socialism is very popular among the Under Thirty-five set that is pushing Bernie along. Those are also the least reliable voters in a primary though That's the dynamic that Buddha judges looking at moving forward and how you figure that balance. Though, don't worry about Buddha, judge, because he can do this for 40 more years, ten more times, and then he'll be as old as Bernie Sanders. Simply say what he can do. Yeah, 40 years. 40 years, judge, at 38 and Bernie Sanders and 78. Oh my god. Okay. Alright. We go to Super Tuesday, Alabama, Arkansas, California, Colorado, Maine, Massachusetts, Minnesota, North Carolina, Oklahoma, Tennessee, Texas, Utah, Vermont. In Virginia, they all have their primaries. And we have the new Bloomberg factor, correct? Money going into a primary like we've never seen before. And Bloomberg is really, they're hoping that if Buddha judge falters because South Carolina's will perhaps show that Buddha judges not getting any African American support vital for the Democratic primary to lock that up post Nevada, it might not be clear if it's Sanders or who else is that moderate lane democrat. So he's standing there and we could winnow down, interestingly, 2E a perhaps a Bloomberg Sanders show down at the convention. Mind you, neither of them have ever been on a ballot. As a Democrat, you're suggesting a brokered convention. The more you look at the numbers, if you look at how the Democrats, and I always think of the Democrats, Monty Python and the Holy Grail, where the two peasants are digging in the mock and they describe how they make decisions. It's, you know, it's 51%, but then in certain circumstances it's two-thirds present. The Democrats are always going to figure out the most complicated way to do it. And that's why the brokered convention, if you look at the data, seems more and more likely, unless you get club a char star, some of these others to dropout quickly, there's gotta be some consolidation if they're going to avoid a brokered convention. But your view, if I heard you, is Sanders Bloomberg vendors is in the front track right now. I would I would handicap this is Sanders to lose. A month ago, we were hearing that Joe Biden had the front track and he was the one who could beat Trump. Pope by poets. Yeah, I'm, I'm very sorry. To a state of Delaware audience. The the Biden reputation has held him up through the National Campaign. The name recognition, the association with President Obama that has been strong, has support from the African-American community, cannot be discounted as, as the primaries move to the south and to the west. That said, though, the, the infrastructure, the money, and what would someone say? Even just the spirit of Joe Biden is not the same as it would have been if this had been him running in 2012 or, or earlier. We last week saw a remarkable state of the union with no shaking of hands. And you saw the State of the Union? You saw the State of the Union? Yeah. What did you make of the state of the union? It is a perfect example of that are 20-20 politics will probably be the most vitriolic and rancorous that we have seen in our lifetimes. And it's a combination of reality, television, politics, social media, closed media, environments on the right and left, partisan media. This is all created a culture war industrial complex that is going to be firing with all cylinders into 20-20. And that again where we now have these discussions where I could split screen the news channels and you think we're watching two different planets being covered when truth is like that. And truth is considered a fungible aspect depending on your partisan affiliation. It's just going to be that kind of drag each other through the mud politics. The center for the study of the presidency and Congress, founded by Dr. David AB Shire with senior White House Advisor and counselor to President Reagan, is nonpartisan, correct? Yes. How do you deal with dissenters, constituencies who both think you're saying something offensive at the same time. Well, you have to, I think look at where we saw examples as discussed, the public-private partnerships that are being done at the local level to address these issues. The, the state of government where if you are a mirror governor and you can't just fall back into the traditional Washington partisanship. So you get a sense at the local level that people want results. You also get a sense that you have to focus on what are the areas where we're finally getting a grasp of the international challenges, where we're actually getting bipartisan agreement on the threat that China poses. Some of the discussions where I think we're at least finally saying, and perhaps even among younger generations, even if politics or vitriolic Look at what China's doing while we argue about what bathrooms people use, how do we figure out how to step back from that in a way that keeps America competitive and strong. Before we go to Iran. The electoral college calculus. Would you? Yes, certainly. I don't think I think to 70, whatever. Yeah, you still have these trends where what we saw with what President Trump was able to deal in Pennsylvania, Ohio State's, there were traditionally const, >> the Democratic blue wall. Those are much more into play. So the calculus, and pretty ugly looking at this economic picture, it does give President Trump and inside edge towards re-election. I don't think you can discount that even with the the anger and the disappointment that a lot of people have with how he has pursued his policies. You imagine as you travel around the country, who say if he only tweeted less, if I had a dollar for every time I've heard all over the country, I'd be running with Bloomberg type money. And you hear that and you think, well, perhaps what would that look like where we could have had a President Trump headed towards a Reagan ask landslide re-election with two Republican houses of Congress. And those were like a lot of the democrats you talked to in 2016, right when Trump was inaugurated, that was their biggest fear, that he would just completely ignore the culture war. Let the economy take the economy off its leash. And we would have a, a reshaping of the political alignment that would, that would get rid of the traditional blue collar democrats, Iran, North Korea, and China. Let's start with Iran. What's gone on? Iran is a reminder that no matter how much the United States wants to extricate itself from the Middle East. That region remains a masked the rivalry between Iran and Saudi Arabia. We could have an entire lecture on that. But I think though, when you hear a candidate of either party say that they want to remove US forces from the Middle East, but then they also say they want to ban fracking in the oil drilling. That's a dichotomy there that I can't balance. If you want to have the US out of the Middle East, you have to focus on our domestic energy production. Desert ran get resolved any time soon. I mean, I think back to even Jimmy Carter days around, it's always been a big pain. Iran doesn't get resume. And until there's a generational shift in the death of the, hm, the death of the generation that fought in the Iran Iraq war. And perhaps we, we sped that up a little bit with solo money, but it's going to take time with others. So this is going to go on for a while the way it is. And they don't like us and we don't like that, yes. And how we keep that, that confrontation below a certain noise level that affects markets. You see this sophisticated level at which I try to understand things. They don't like us, we don't like North Korea. North Korea will continue to be an issue with their nuclear program. I think the deals that President Trump denounced were high on optics, low on tangible results. But that is a country that is increasingly beholden to China for its economic survival. It is, all intents and purposes, a satellite state. And as we get to coronavirus to that is actually one of those nightmare scenarios that the corona virus outbreak spreads into North Korea because that is a, that would be a humanitarian crisis unlike any other. Just because of the weakness of their healthcare tells the people are starving. It would be a perfect population for that virus to take whole. China. Not only dealing with the coronavirus and already slowing economy Tell us what you make of that. As they're also manufacturing seems to have shutdown. They cut tariffs? Yes. Or reduce their tariffs by half? Yeah. I think I think what you'll see is that it's going to be interesting that how they respond to this. You're gonna see a lot of economic stimulus from the Chinese government to try and resolve this. You're also going to see though, that we're, we'll learn that our supply chains are extremely fragile in some circumstances. That as these factories shut down, everything that we've built for just-in-time delivery. Or our reliance on China, or even as we think through our reliance on other countries, there's no factory in the United States that produces penicillin. Things that we need to think of that nature, of a, of a strategic nature with China. And this is where you're getting bipartisan agreement in Washington on a stronger stance there, that we are in a long run competition with China. That whether you like it or not, I don't think it's even a policy that decoupling is happening because they're creating their own systems, their economies maturing. And it's going to be a lot less of an economic focus on access to the China market and a lot more about how we compete with China in markets like Latin America, India, Africa, the rest of the developing world. >> We have to think of it less as a relationship with China and more. How do we start to train to beat them in a marathon? Give us just a brief cultural insight. You lived in China, you studied in China, you speak Mandarin culturally inside of China. What's going on? What's the reaction? How to Chinese out of the Chinese React both to the slowdown economically, but also to dealing with this disease. Almost 50 million people entering warranty. Well, certainly we have to understand that Chinese pride and their policy towards technologies that they see the 200 years where China was weaker than the West as the >> historic aberration not the norm. And that when China fell behind the Western technology, that was when it's at its weakest. Therefore, China must never fall behind again. So that's why technologies like 5G, Artificial Intelligence and even this trade were all met with, even if they disagreed with the government, it was met with a lot of national pride about meeting those goals. This coronavirus though, and I think particularly where we saw the death of Dr. Lee when Liang, who was the whistle-blower, that's a little bit of China's Chernobyl moment. The, the government is not as all knowing that the, the lower level bureaucrats are more interested in saving their jobs than the truth. And that's when you have that those shocks to the system that say, particularly in Chinese culture, that collectively we as a people are strong, but maybe we're not being best served by our government. You and I perhaps may sit here a year from now and we will have a new president. We may have a new congress and senate. What does Washington look like? What do you think will happen through the Federal Reserve? This is our closing and this is your Swan. So you get this right, you come back. Well, yes or no Here, Anna and I'll find out what is a traditional Delaware preparation for Crowe? Yes. I said I've had it several times. I continue to see the trends supporting President Trump's narrow re-election through the electoral college. But that demographic trends continue to have a more solidly Democratic House, particularly more suburban districts, as well as a Senate that continues to be Probably 50-50, if not slightly democratic, favoring just because of the map where you think that the president tries to be re-elected with two Democratic houses of Congress. Alright, >> That's it for us and our 15 minutes. Thank you. **** happy. Thank you much. ****, that was still somewhat disturbing, but don't worry, I will turn I will turn the stage over now to Michael and then you both them set the bar very high for our panel discussion in 15 minutes. So Mike on the stage is yours. Thank you very much. Thank you. Thank you all very much for having me back again this year. It is a great honor and privilege to be with you. >> I'm going to talk about a little bit about what I've talked about last year. I'm going to talk fast because they've given us 15 minutes and I always take a half an hour. So I'm going to really try one thing though. I started the first one of these I did, I did with Dr. Jim O'Neal. And there were about 50 people here 11 or 12 years ago. It was great, but it all happened because of David Lyons. And I know that last year I asked told you all that we knew David. You couldn't have a moment of silence for David. But if you just join and giving me David, David lines around of applause. I know it hears this. Had more fun with David Lyons. God, We had fun. Okay. Some of the risk and I'm going to move quickly. What I told you last year was that the economy couldn't withstand significantly higher interest rates. The economic growth was likely to slow based on a lagged effect of the Fed. Interest rates hikes. Usually it takes 12 to 18 months for monetary policy changes to show up and economic data, the fading effects of fiscal stimulus and the tax cut. We had a big bump in that first 12 months in 2018, but that didn't show up again in 2019, we had a global economic slowdown, sharp reduction in capital spending. That's that business spending that President Harker was talking about. I think I listen very closely to President Harker. He nailed it, you nailed it, you got it. Now, that should really scary because that means I I agree with you, I really agree with you. And that should worry you. Policy, policy uncertainty policies are at odds with those that are going to be better long-term policies. So monetary policy, fiscal trade, immigration have other ways. I think that they're at odds. And stock valuations are we're incorporating a lot of the weakness. I thought I said I thought that they were incorporating the weakness. Stock valuations have gone a lot higher. So growth has slowed. We see, let's see if I can get this thing right. There we go. We see that spike in 2018, we had the tax cut and we had the big spending bill, still a trillion dollars in deficit spending that has spike. But basically we've come right back to trend line growth. We had that big rat of money go through the snake, but we didn't see a multiplier effect. Bummer. I mean, we spent a lot of money, spent a lot of money didn't see a multiplier effect. If you spent a trillion or so dollars, you'd probably want to see what? A trillion one, trillion two back, not so much. So consumer spending, as President Harker said, has been strong and it has made a huge contribution to GDP growth. Right over there, you can see that most of the growth in GDP has been driven by that consumer, consumer strengthen the consumer. That consumer strength has been driven by that low unemployment and rising wages. So I think the best news, I'm, I'm going to agree again with something President Harker said was, as you see, that wage growth that can generate more economic growth, that's consumer growth, where 70% GDP is the consumer, 70% of GDP, right? So if you can give the consumer more money, american consumer, more reliably than any other citizen of the earth spends. Whatever you give them, give them money, they're going to spend it there. Fabulous at spending money. It's a bit shameful, but we really are good at so with those incomes going up, you can see organic demand come back, right? We need to see this more demand. We haven't had a supply problem, we had a supply side solution in my donut doughnut shop illustration, we've got three people working on three machines to make donuts. We can make more donuts. We can make more donuts if we need to. What we don't have or people outside the door way to buy our donuts, we're making donuts. Also, in theory, if we add another person, we should get more donuts, we get another machine, we should get more doughnuts. So those two things, productivity, productivity and also labor. When I add labor and productivity, I can come up with growth. So that's what I'm looking for there. We have very low population growth in the US right now. As long as it's ever been. By the way, three-tenths of 1% is the fertility rate, three tens. So the US population growing at three tenths of 1%. Think if you're going to hire next year or in 18 years after these children are born, three-tenths, where you're gonna get your workers. Where are you going to get your people to make your donuts? Legal? Immigration, fabulous. Let's make sure we're all on immigration. I just need workers. Okay, I need some immigration here if we're going to keep growing. So US manufacturing sector briefly join the rest of the world and contraction business investment didn't really happen. President Harker talked about that there was weak growth outside of the United States. Trade Related uncertainties, a stronger dollar. So what does a strong dollar Do? It makes our stuff expensive, TBI, for the rest of the world, they don't buy as much of it makes their stuff cheap for us to buy, so we buy more of it. They don't buy as much bars. And we have this trade deficit. And that trade deficit is a minus sign. That GDP calculation. But if you didn't take my advice last year, you can still do it this year. Go to Paris, go to Europe. It's terrific and gets the same bottle of wine. You get the very akin to upgrade the hotel room. It's all cheaper. People in Paris, they don't like us, but they never like to. So go spend, spend, spend your money. Really trade related uncertainty, strong and falling energy prices. Falling energy prices is now in the big negative, is a negative for us because our energy industry is so large, it's so large now we're self-sufficient. How cool is that? That the United States can be oil self-sufficient. Very different from the seventies when opec was going to cut off our OM P 500 went up 29% without, without dividends last year, reversing that 20% correction that we had here, 20% and that December. But still it's to your annualized return of 10% a year. I'll take it. Whoa boy, will I take it. I met with a money manager I've known for 40 years over the weekend who said, Michael, Michael, it's only going to go up monies cheap. Interest rates are about 0 monies, basically free. The Federal Reserve is actually increasing their balance sheet now through this repo thing. So we've got money coming in from all sides. It goes up, you shove enough money in it, it goes up. Market strength appears somewhat confounding because earnings were reduced eight to 9% last year. We were looking for about a 10% increase in earnings growth last year. It was ratcheted down those expectations almost every month to where we got about a 2, 2% percent earnings growth. Think about that 1 second, earnings go up 2%, stocks go up 30%, huh? Huh. Well, you did see price to earnings multiples go up, but not quite that much. Has a great, We do a great bit of alchemy. Stock market analysts do a great bit of alchemy, and that is every August or so they start looking at Nest next year's estimates. So instead of showing you exactly what the price times this year's earnings are. They increase those estimates by 10% and they give you the new adjusted price to earnings ratio, presuming that next year goes up 10%. Well, they did that last year, they just didn't go up. So the market has gotten more expensive. This is a full price market trading up near all-time highs. Earnings growth, 2%, and expectations for 20202021, you see over here are still at 9, 11%, great. But basically they were at 10% last year and that's where they ended up. So let's see where they end up this year. Hope that they come alive. We shall see 19 times estimated 20-20 earnings stocks not cheap, high end of the range relative to interest rates, we look okay. This is the earnings yield for the S and P 500. That spread is still positive. And look how low the 10-year treasury as I think we run 1.61.65 today on the 10-year Treasury. Now if you think about the real cost of money, if inflation is 13 quarter pushing 2% and you get a 10-year Treasury. You can borrow money. At 165 Money's free monies, free 0 rates. Okay? What's really supporting stocks? The Fed Reserve, Federal Reserve, reverse rates it last year when we were, when we got together, we had just been through that December and the Fed had, Federal Reserve had raised rates for the ninth time in a row, well then they cut three times. That's a pretty big reversal. So they've lowered those rates. They think they're at the right place. They think they're at the right place. And they might be, except I'm a little worried about coronavirus and I'm gonna explain that in a minute. I'm going to talk about three risks that I see coming up to the market to have him. I have drawn out, but the coronavirus is a little different. Congress had passed massive spending bills and businesses had used that tax windfall to buy back massive amounts of stock. So that huge tax cut for Corporation's stock buybacks, did they create more jobs? Not really. Not really. Do they build more plants and equipment? No. Why didn't they do it? There was a lot of uncertainty for those companies. So what's made all of this economic stimulus possible? Low inflation, low inflation. You can keep adding money as long as it doesn't ride that, drive that inflation crazy and low interest rates. So here's my risk one, a surgeon inflation and interest rates, I'm going to discount them very quickly. The Federal Reserve right here is not seeing these are, these are interest rates. They don't look like they're going up anytime soon. The trend is still down. Inflation doesn't seem to be a threat right now either. This is the Fed's preferred PCE expert and energy the price deflator. It, it's a that's their gauge of inflation and you'll see it writing below that 2% mark. So in terms of interest rates going higher anytime soon, or the federal or the, or inflation picking up. We don't see it. Here's the inflation. It's kind of puzzling, isn't it? I mean, you've got 3.5% unemployment. You have more job openings right now, almost a million more job openings than you have people looking for jobs. How many employers in the room? Look around, look at that. That's really terrific. How many employers in the room keep those up? Would you? That's a lot. Have you tried to hire lately? Is it taking you a long time? Do you have to pay him more? I do. I do. Where's David Garcia? Don't listen. David Garcia, By the way, I wrote a letter when he was in high school to help him get in the University of Delaware. He was a terrific student at University of Delaware. He went to work at JP Morgan and I hired him. How many years ago? 4-5 four or five years ago. Got a CFA as an analyst with far Miller and Washington. After he was there for two years. He did such a good job by heritage younger brother to also went to University of Delaware. I went back to his parents. By the way, his father is a little bit older than his mother, but as his father was near 70, I went and met with his parents. I said, you know, if you could do me a favor, I would appreciate it if you would have a couple of more children. His father was very enthusiastic because his mother, his mother not so much. So you would think, you would think seeing these Fed balance sheet increasing. Large tax cuts, you would expect to see inflation. We're not seeing it. So why aren't we seeing inflation? Globalization, automation, and other technological advances were able to be a little bit more productive, may be weaker labor unions aren't arguing for higher wages. Demographic changes, enhanced price discovery made possible by the Internet. I can now check whatever, what Gadget pair of sunglasses I want or shoes. I can check Amazon and I can tell you whether I'm going to buy it and this store today or I'm not. And there's price efficiency and everybody's gotta kinda do it. So we have a strong dollar. We talked about it. Energy Renaissance. The rise of populism on both sides of the political spectrum ensures that policies, these policies that will boost inflation, populism is the notion of give them whatever they want. Just vote for me. I'll give you whatever you want to just think about that. I mean, I feel like, you know, politicians, they should be like Monty Hall. Do you remember? Let's Make a Deal. But behind the curtain where Carol Merrill is now standing, you want more tax cuts, you want to increase government spending, higher transfer payments that Social Security, Medicare, Medicaid, and aid to dependent children, debt forgiveness, you don't need to pay that student loan back. More restrictive immigration policies, great FED rate cuts. You listen to President Trump talked to my friend J-Pal, it's not nice. It's not nice. The way he talks. J-pal, By the way, I talk to JPL in Washington a couple of weeks ago at a dinner? I hadn't seen him in a well known him forever. We've been great friends. And I said I've gotten concerned at times. The J, How are you doing? He said, I'm loving it, I am just fine. I love this job. This is so cool. I was really glad to hear it because, you know, I'm I'm much more sensitive. He's fine. He's a lawyer, you know, so or we could have this reception, sorry, lawyers there. But listen. If you're going to listen to one thing I say, one thing that the guy with white hair says, there will be a day of reckoning for the willingness to pursue incremental growth at any cost. There ain't no such thing as a free lunch. This bill will come to okay. Risk number two, economic slowdown combined with the recent surge in debt and deterioration of lending standards could lead to a turn in the credit cycle. We had a big credit cycle problem in 20082009. Big credit, subprime loans, right? It could one thing to watch, but as a global debt, look at global debt, $255 trillion in global debt, that's three times global GDP. That's 32 thousand. Think about this. $32,500 for every man, woman, and child on the planet, every man, woman and child on the planet, 32 thousand to lot of debt folks. So global aggregate negative yielding debt up to around $14 trillion. Japan and Germany right now have negative yields on their ten year government securities. You take your $10 thousand and you buy a 10-year German bond, and they will guarantee you that they will give you back less than $10 thousand over the next ten years. Same in Japan, they'll give you less than they'll give you in Germany and people are buying them. It's mind boggling. Okay? What's happened? We've seen with all of these low interest rates, the amount of debt on corporate balance sheets has doubled over the last ten years. For the S and P 500. Why has it doubled? Because I had a 5% loan and now rates are 2.5%. And I used to borrow a million dollars, but now I can borrow $2 million for the same payment. So I do it. And when I do that as a corporation, I look more highly levered while I am, but that's going to lower my credit rating. But that's okay because I'm going to take that money and buy back stock. This is great. I can support my stock price. This is wonderful, and it's just great. Intel interest rates start to go up on that $2 million in debt where I only had one. There was in if if we look to the triple B and single a window, you can see how that lower level of debt has exploded. There's so much more of it. What happens when interest rates go up and that borderline debt becomes a problem and the financial start to suffer a little bit. All of a sudden that triple B goes to double B and it's junk bonds. That's a problem. I'm just watch these things. I get paid to worry for a living. I really do. So this is one of the things I worried about. But this is this is more debt and it's and it's borderline debt. I'm gonna move, I'm going to try and move more quickly. Total deficit, primary, primary deficit, net interest rates. This goes out to 2049. So what I want to show you here is in 2019, the deficit net interest rates are at about that trillion dollars. It's about 4.8% or so of GDP. Look where we are gone in 2050. That should scare you. Look how much of it's going to be interest. Almost 9% were in a bad loop here. Folks bed loop, you start with a populous government who wants to give you a tax cuts and don't pay your student loans and everything else. And deficits rise because I'm not taken in money, I'm still going to spend money. I'm going to do deficit spending. And then we're going to surge and bond issuance. And who's going to buy the bond issuance will, the Federal Reserve and Treasury is going to purchase, are going to be purchased by the Federal Reserve at some point. That keeps interest rates low, and then investors who can't get any yield on anything. I was in Florida yesterday. I played golf saturday with some retirees and I told them I was coming here to talk with you all. And they said, Oh, these ****** interest rates are killing me. These are retirees. They saved all their money. They feel really cheated, really cheated and a little angry. But so they've gotta own riskier stuff. Credit spreads, contract, stock prices soar. It's good if you're a stock Manager, that's really good. Exacerbation of economic inequality. So then you have people who say, well, I didn't have stocks and I don't real estate, so I feel left behind. Hey, politicians, what are you gonna do for me? And they said, well, we'll give you more. Not a good not a good cycle. What ammunition We have if really if things really started going down, Fed funds or one in 5, 8% fed Balance Sheet, $4.2 trillion. Not quite a record, but we're close federal budget deficits at $1 trillion a year, and the federal debt is already at 23 trillion. That number should be $34 trillion over the next ten years. 30, GDP is not growing that fast. I talked with a senior economist here today before lunch and I said, what do we do about this? And he basically said one answer. You've got to address. Social Security, Medicare. These are unsustainable, financially unsustainable. The math doesn't work on these programs. And I don't mean to go against takeaway Senior Social Security, but how about we make the retirement age 70? You're going to kill anybody. We're all live. And you know what? 83 now it's life expectancy 82, something like that. Work a little bit longer at that would solve, that would go to solve a lot of the problem. So we passed a major stimulus, major stimulus right here when unemployment was already down and we increased the deficit. Why do you deficit spend when unemployment is already going down? Why do you throw gasoline on the fire when the fires, okay, that's what we did. The tax cut. I get the other stimulus or the other I don't, okay, I'm gonna keep moving. What about stocks? What could kill the golden goose of a stock market that trades? Words Ray, intensify inflation heats up Iranian conflict. That could be a big problem at some point, maybe not election, the lack of Fed support in election year. The Federal Reserve likes to be quiet and election years they don't like to influence elections. Credit bubbles, coronavirus, look, I went to a dinner in Washington, a whole lot of marketing mix a couple of weeks ago, number two or three guy at Ford says, we're probably going to shutter US production, probably going to shutter US production in the next couple of weeks. I said, huh, can't get parts. We get our port parts from central China, that area where they've got the 50 million people under quarantine. I it takes 30 thousand different parts to make an automobile. I can't sell you an automobile and tell you I'll give you the glove compartment cover later. Gm's having the same problem, Apple's having the same problem. Airlines are not flying. British airlines as in flying Delta, American, United, or not flying to China. Hilton Hotels, no rooms. So the Chinese are doing, and a lot of Asians are doing what's known as cocooning means a stop. We'll see how these, how this affects our economy. But we've got the second largest economy in the world that's already sending out huge ripples to the rest of the world. The can't get parts. And when they're not sending us parts, by the way, they're not buying from emerging markets for the supplies they need for their factories. So those economies are starting to feel that the longer this goes on, I believe it puts us end or a threat of recession I think we have to watch this. I'm not ring in the recession bell yet. I only rang the recession bell once in my career. It was winter of 2007, and I'm in print doing it a number of different time. Joe current and yelled at me on CNBC. He says, you've been talking to us about recession for three months. Where the **** is it? Three months? I don't know. I don't do anything. And three months. So a number of things could and complacency, everybody says look smaller and so much money out there far don't you worry about a Fed has our back, we're counting on you. Don't let us do this for one, K's are looking great. We still have just very narrow leadership. I know I'm moving, I'm trying to get done here. Promise very narrow leadership. Microsoft, Apple, Amazon, Facebook, Google. Google and Netflix are the traditional ones I had, and Tesla, and they're basically a third of the whole market return. Last year, it was up 30%. If you didn't own those stocks, you were up 20%. If you didn't on those six or seven stocks, you are only up 20% and the market was up 30. Would that have been an appropriate amount of risk for your portfolio? Down Netflix or Tesla? A lot of people would have to say no, but I love this stat over here. If you take a look at the market capitalizations of Microsoft, Apple, Amazon, Facebook, Google, Netflix, and Tesla. $5.7 trillion. That's bigger than Japan's GDP. Yeah, so I think that long-term earnings growth, we know that estimates were up at like 10%. If stocks can earn from these levels, four to 5%, we can get a 2% dividend. I think we get a 7% longer-term returned from stocks. Boy, that would just fine by me over the next five or ten years. Ladies and gentleman, please never bet against the United States. We have a free capitalistic society where innovation is rewarded. We have a stable democratic government, well, and not everybody in its stable. But in general the thing is stable. We have strong contract property laws. The Federal Reserve, you all are very stable, very, very stable Federal Reserve, educated workforce, inflation and interest rates are very low. And we have a much more competitive corporate tax rate. We send out a weekly free market update. And then we do, Dan and I do our podcast every week. It is such an honor to be with you again. Thank you so much for having me mislead. >> Alright. Well, thank you, Michael. That was also very well done. We will see what more ground we have to cover up here. We're gonna take questions from the audience. And the second half of this presentation, and I will be taking questions from this monitor here. And there's the prompt for how to submit questions, which I will turn to in 152025 minutes or so. So feel free to to load up the cue for us to maybe I'll start with wood, President Harker. And it feels as if no sooner >> add the uncertainty over the trade war skirmish with China gone away last month, we had finally the much anticipated phase when trade deal with China. No sooner had that happened, and we now have this new uncertainty to deal with with the coronavirus in China, which, which Dad and Michael touched on quite a bit, uh, but it seems as if we don't, there's a lot we don't know, right? There's the extent of which this virus is spreading within China. We don't know how reliable maybe some of these numbers are that are being reported out of China. And then a lot of economists right now are comparing what's happened in 2003 with the sars epidemic. >> And yet, China is a much bigger part of the global economy of the US supply chain. So given all of that, as a policy maker, you're sitting there trying to figure out, well, gee, how bad could this get? What do you do? What do you make of this, of this new source of uncertainty? That's a risk to the market, that's a risk to the dollar going up more. That's a risk to getting inflation, perhaps to holding your target. So I think last year clearly there was a lot of uncertainty from many sources that the phase one China deal resolves some of that uncertainty. The US MCA resolve some of that uncertainty, but there's still remains absent China a lot of uncertainty. I mean, we don't yet know or are full relationship with the European Union. In some ways, the Brexit deal, while it's in train, we don't know how that's all gonna turn out than the relationship we have with the UK and Europeans and its aftermath. So there's still a lot of uncertainty even beyond track. But then specifically to China or to go back to the point was made earlier. So if supply chains are interrupting an AR, What does monetary policy do about that? How would changing the interest rate 25 basis points solve that fundamental problem? It doesn't. And so there are uncertainties. And as a policymaker, you have to think, there are uncertainties. Which ones can we addressed with our toolkit and which ones are outside the toolkit of the Fed or any central banks. This is where to be a central banker, you have to have many, many doses of humility because you need to recognize what you can do and what you can't do. Now that said, if the situation get significantly worse and that we start to see significant impact on the US economy. Then we'd have to think about accommodation. But that, I don't think we're at that point right now. I'm not at that point right now. And so I think we just need to let this play out. So if you look last year The Fed Chairman, J-Pal, initiated these three interest rate cuts. It was framed at the time as insurance, in part because we really hadn't seen the data crack. The ISM Manufacturing Index was not below 50 at the time that the committee made the first rate cut. And so the whole case for insurance, there were really three reasons that power sided inflation was muted. And that's still largely the case. If you get through the first quarter where you may see some kind of base effect rise and inflation. But no one's calling for a big outbreak intercalation. So inflation still muted. You are hearing about global growth being weak. And even outside of China, you look at Europe right now, >> germany, some of the numbers haven't soft. So it looks like the global growth story, not a whole lot better. And then uncertainly tread. And certainly last year was the third reason for the insurance. Part of insurance also was this idea of risk management. When you think you're closer to, to a recession, when rates are closer to 0, you should act sooner. So those, those, that rationale last year would still apply. And 20-20 with something like the Coronavirus or would you actually need to see more evidence this time that, that, that, that that episode was actually infecting us data to provide more accommodation, logger back to the display with visitors. My views and >> chair piles or anybody else's started just a little bit of history. As you know, I was not supportive of December increase and I was supportive of the first ray cut because I thought we could get back to where I thought we should be and I was not really supportive of the subsequent read cut either. That said, 25 basis points is not going to make or break here in a major way. So it wasn't as though my support or my opposition to it was absolute, not in any way, shape, or form. I think right now we are in a good place with respect to rate. And so, but you have to ask yourself again, back to my earlier point. If business investment this week, let's just take that for a minute. Ask anybody whether when we've done this anecdotally, we've done in our survey work. What is limiting business investment? Never, never do you hear the cost of capital? It's just not the constraining factor. It was other issues, the uncertainty and so forth. So you ask yourself then, what would a rate cut due to business investment? Nothing. I mean, we haven't really seen that needle move at all. So while I understand these uncertainties are there and I understand these risks are there. I think we also have to be honest about what we can think back to my point, what we can and cannot do. But again, if the economy starts to move in a significant way in the negative direction, then we'd have to take some sort of action, >> recognizing that for some components of the economy, like business investment, it probably won't have a major effect, right? That, excuse me, no path. You said something that I think is really important, which is what the fed and fed it cannot. Do. You have a supply chain issue? What difference does a quarter of a point Charlie plus or your predecessor used to worry that maybe the country or the nation had the wrong idea about what the Fed could do. That, that maybe he actually was worried that the Greenspan Fed was promising that it had magical powers and it could do anything. You're suggesting that the Fed has some limitations and what it might be able to do. How should we best view the Fed and its potency to solve these economic problems. So I go back to the fundamentals of the Fed. The Fed creates the conditions for economic growth. We do not create economic growth. You create economic growth for the decisions you make. Are we collectively make of Americans. >> You create economic growth. We just create the conditions, or in some cases we stymie the economic growth by some of the decisions we make. But you're making those decisions and so I think you start with that. And so what we need to do is look at the other issues Michael, you brought up and Dan brought up there lots of other issues that are limiting growth in the economy. One of them, I'll go back to my earlier prepared remarks is simply the basic economic equation. Growth. As Michael said, his growth or productivity plus growth the labor force. We've seen productivity growth as measured in, or measurement issues really not growing a whole lot, not just in the US but across the globe. So what's the other variable you have more people we are fully supportive of. And this is why we in our economic growth mobility project, or pushing as hard as we can to try to get more people off the sidelines to creative means like the Comcast fill up your works situation. I mentioned GET more people up. But even when you do that, you, we still need more people. And so I fully support your view. We need a sensible legal immigration policy for this country because we don't have that. We will not achieve the kind of growth that we expect. Amen. So if we look at what happened last year, Michael, >> there was a point at which a number of people in the markets and also in the central bank were put at paying more attention to the shape of the yield curve. Particularly there was a point in August where the Fed funds rate, the effective fed funds rate was higher than every other rate out along the curve. And I wonder there's a critique of that, which is that the Fed responded to much to, to markets last year. What do you make of that critique? Do market signals play to bigger role right now in influencing where monetary policies moving. I'm not sure that the Fed cares as much as we think they care about what >> signals the market is actually sending. That inverted yield curve was weird because what I kept saying, Well, when I was on CNBC and other places that I can't believe that the Federal Reserve is, by monetary policy, going to invert the yield curve. And I talked to a couple of different Fed presidents at the time and they said, Oh no, don't be silly. C, This is because you're not an economist. Those other rates will float up. Don't worry about it. We raise here, it'll go up here. Didn't go up here. So somewhere that supply and demand, and maybe you add tariffs and maybe you look at the little bit higher of our long-term interest rates Brought a lot of demand from foreign buying of our bonds and really drove those longer rates. Lower trade deficit, trade wars, all of these things, it got us into a very strange situation. So if you've had 14 and now 15 inversions of the yield curve over the past 40 or 50 years that has led to nine recessions. Maybe this really was the aberration or one that really can't be correlated to recession. And I suppose you could argue that lowering the front end of the curve on, inverted the yield curve. The Fed's own actions may have, Reece may have created the fear. They did it and they ended it, right? >> So Dan, looking at the problems in China, what should we be looking for to understand, you know, when there might be an inflection point in terms of the authorities getting a handle on on the on the on the difficult health issues there. Well, I certainly think what we, what we want to see is a point where the data, you know, some people have looked at that and say the rise and the disease rate seems to just match the rise in testing kit production. And therefore that tells you that the size of this is really what we're seeing are actually getting the testing done rather than a the rate >> the disease spread itself. One of the signs where you start to see, I think that the Chinese have a sense of it's under control would be that you actually see more foreign assistance invited in. They've been very reticent about that. That's a matter of national pride. That also suggest though, that the situation on the ground is something that they do not want Western or international audiences to see. I also think though that when you have the rumors stopping, at least we know that the hub a that area around Wu Han remains under quarantine. But we're also seeing smaller, more local quarantines of Beijing, individual Beijing residents, blocks, Shenzhen, other important areas. If we start seeing less of those stories, maybe that's when we know it started to, to curve back downwards. But the, this is truly where I think all of us look at China and say, can we trust that data? And it hasn't been, and this is a pretty acute case, but even there, their debt numbers, their economic numbers, that's long been a question. So let's see what the, how the central government behaves on this because that's your clearest sign of, of their thinking. Moving from the near term issues to maybe looking out over the longer term. >> Pat, the Fed has been engaged in a year-long review of its inflation targeting framework. The Fed established a goal of 2% inflation eight years ago, which is a way to kind of fill in the blanks from the mandate that Congress gave the Fed to maintain stable prices. So the Fed said they would, they would measure their progress against price stability by seeking 2% inflation. A few years after that, the Fed said they wanted the target to be symmetric. Basically that 2% was not to be seen as a ceiling. That inflation should rise above and below 2%. And the Fed should be equally concerned, are not concerned about In a quarter versus 13 quarters. But since then, and now that you have an eight year, eight years of history, we see that inflation has really helped below 2% for almost all that time, except for the period that Michael pointed out in 2018, where we had a synchronized global growth upswing and the fiscal stimulus in Washington. So, so given that record, we've heard more discussion and an interests may be and seeking to change what symmetry means by having the outcomes. The MRS. above and below 2% be symmetric rather than just the intent being we're always going to try to get a 2% as the Fed goes into kind of the last hurrah here of the framework review. >> What is your appetite for making a change in the framework that would actually encourage more periods, especially later in the expansion of inflation above 2%, so that that target is seen as really credible. Yeah, so we've had this year long exercise called fed lessons where we went out all the banks. We hosted events, every bank and the system host events. And we had a major conference in Chicago that debating these issues. So start with how would you do this? How would you credibly signal to the market that you meant to do this. One way that has been debated is average inflation targeting. So you say now we're going to shoot for 2% over some period of time. Then of course, the obvious question is what period of time? Or you're averaging over two years, five years. That's one question. So that has to be resolved. The second part of that though is if you're committed to that, you're committing future committees to behave the way the current committee wants them to behave. There's this timing consistency problem economists caught where you just, that's a difficult thing to overcome because the future Committee has their hands don't need to be taught. So you don't do that. There are other ways of possibly doing this. Some people said, let's have a range. There are other central banks that have a range. We admit we can't hit quite 2%. We'd say it's going to bounce around within some range. You could do that. My Pham says we should first get to 2% and above before we'd even think about doing something like that, because I think it could be misinterpreted, right? So that's my own view, but we were still debating. This was a committee of exactly what we do. But then I'll just briefly wonky for the academics in the audience, if you have at the 0 lower bound or the effective lower bound, and you're going to hit that with some reasonable probability, which is given how rates the neutral rate is, how low it is, r star, you will hit it. You have to average inflation above 2% in the good times to get 2% on average. Because with the effective lower bound, you will on average hit below 2% and non ergodic distribution for the wonks, right? So in that case, we should shoot above 2%, but we don't want it running out of control. I mean, you've forgotten to do whatever we're going to do. It should be Keep it within control because again, the goal isn't a specific number to me. It's what is the path to get to that number? If we're shooting path 2%, that's a very different policy response that we inch past 2%. Alright, so I think there were still debating a language and a framework and how we would exactly I portray that general sense that we get, that we have to get above 2% for awhile to on average have 2% that the target. But exactly how to do that is really the, the active debate within the committee on just to walk back the context a little more. So the target was officially adopted in 2012. At that point in time, most people thought >> that we weren't going to be infrequent episodes where rates we're going to get cut to 0. And the downturn, right? People thought that in the long run you would get interest rates back to four, maybe a little bit more than 4% in the last three downturns, the Fed has cut rates by five percentage points. So that would mean that your garden variety recession, maybe you could handle it without, without ending up back at 0. Now what we've seen not just in the US, but Japan and Europe, everybody's revised down their expectations of how high rates are going to get. Where it, we're sitting here at 1.6% today. Does the framework needed to be updated because of the problems we have where nominal interest rates are lower than we thought they were going to be. Inflation has struggled to meet the target. >> You're looking at. Europe and Japan saying, gee, they're having even greater trouble generating inflation. Let's get ahead of this now. Now I think that's exactly what we're trying to debate. We are living in this low are starved low real rate and neutral real rate world, right? And nominal rate world. And so given that is true, how do we conduct monetary policy knowing we're gone and potentially hit 0 in the future. And again, I think we do this in a way that's proven that we, In my case, I want to hold rates now for a while and see how things shake out thing Michael hit it. We've made these changes. Let's see how they shake out before we'd consider any move. But the other point I wanna make is if you look at those countries, let's pick Japan. Real monetary policy solved that low r-star prop. Now it's a demographic issue. Demographics trump anything we could do. If you have fewer and fewer people, growth is going to slow and you will have a low interest rate world on average. If that's the case. We also, again, have to be humble, saying we can do what we can do, but recognize a lot of situation were dealt the low r-star world. It's really out of the hands of monetary policy. So Michael, you're sitting here, you're managing money. You're having to think about what are the risks when you hear something like that, that G, that there's something that monetary policy might lose its juice and there's not a whole lot in the monetary policymakers can do about it. How does that change? Does that change your your >> Your Outlook, your risk appetite. It yes. When you when you hear that, I think you have to take a look at what's been driving markets for awhile. And you have to remember that slide of the Fang stocks. This has been now, look, there's some wonderful things about the Fang stocks. Those are really high growth technology stocks and some of them are still at reasonable prices, some of them are, it's absurd prices, but a lot of the markets don't care. Those things just are going to go up. They suck the air out of the room. They are big momentum stocks. And my question was Nick to the audience, you know, should, if, if your hair is the same color as mine, should you own Netflix and Tesla? Should you own a Tesla that's still losing money even though the price is going up. So I would say no, it's not appropriate for your risk. So the answer is, you kind of have to decide if there's any real there, there remember the old Wendy's commercial and where's the beef? You know, Is there anything wheel there under that company? So use now more than ever, in my opinion, have to look at balance sheets. You have to know that they've got good cash flow, that they have returns on equity, that they don't have too much debt. So that things you have too much debt, thanks, can turn very quickly. So one of the things we tell clients is that I will I am comfortable as much as I don't want to come to you and apologize for underperforming in any given year, I will come to you and sit down with you, Mr. and Mrs. client, and say we underperform because I did not take on enough risk, but I will never see this was going to Jesuit High School. They put the fear of God in you and lots of guilt. And they make you really believe it's teenage boys, that **** is a very real place and it's probable that you're going to end up there. They were really sure, Mike, if Kate you know that, right? Yes. Kate Lyons went to stone rich school, the Sacred Heart School. She got the same message, I'm not going to come and sit down with that client and say, I'm sorry, we lost your money because I took too much risk. You can't do that. So when you see risk and risks than the types of which the President Harker is describing you're responsible for you. Isn't that an odd message? In today's world, you are responsible for you and your retirement, your financial wellbeing. Be careful. >> So then I want to ask you about fiscal policy or so while we're up here talking, the president in the White House today has released their, their budget for 2021. We still, there's a high likelihood, of course, have $1 trillion deficits of the Administration has proposed some spending cuts to try to, to try to bring that down a bit. The question I have is, what's, what's the, what's the cost right now? The US government can borrow 10-year money at 16. I think Michael said earlier, the 30-year is that 2%. Is there any given given then, is there any appetite right now for for folks in Washington to be concerned about this. >> Yeah, I don't think there's anyone claiming purity anymore on deficits or even claiming to care about them. I think the attitude in Washington is that there's plenty of chairs and no ones near the record player to stop the music. And therefore the, that this cycle can continue to go on. And that some will say, Well, you know, as long as the dollar, the reserve currency, we can keep doing this. They'll kind of do sort of back of the envelope economic theory to explain why it's no problem. But then what you find is that it's the long-term question is Michael points out is if we are doing this fiscal policy, where is the costs going and what is, what is being invested in and what are we getting? What are we getting out of him? Or what are, what are populists? Populists around the world, we find they're very good at bribes, they're not good at investments. And so you don't have the work on, you don't have a deal on infrastructure, you don't have a deal on immigration. That, that's perhaps even where we could say our politicians don't have enough of a risk appetite to be statesmen on some of these. They don't want to go back to the primary in their gerrymandered district, or they don't want rachel, Matt, our Sean Hannity, yelling at them that night. So there's no risk appetite there. So it's easier to just continue to keep these programs going. And then we do ask those questions about birth rate and those investments where the things are like paid parental leave that even Republicans are starting to get behind. What are those investments where we say, okay, look, perhaps this is coming onto the public tab or it is going to require more revenue from government to pay these. But down the road that actually allows for population growth, more consumer spending, more consumer growth. What are those politicians willing to say? This is an investment rather than promising ponies and Ferrari's and every driveway and infrastructure may do that if done properly. I don't know. I still hate the idea of more deficit spending that infrastructure could show those sorts of returns. Do you think so, Pet? Yeah. I mean, it is quite surprising to me that this was the bill that was always easy to pass, right? Yes, it is. But it's like the infrastructure. Washington's become like the Brazilian economy of the future because it's the, it's that we're going to be able to do this. And then it's, And no one also talks about the structural side of it. And I think of it when I'm, when I'm traveling around and I explained what I do and people to all your from Washington. And I go, well, you choose the people you send there. And like that's the that's the message. So if the, if the bridges are not being fixed in your community, if the airport stinks, Those are the kinds of infrastructure things that it's time to say, Okay, focus on those things that we need for the future. And how can you have that adjust the incentive structure for our politicians? Because that's not what we're, that's not the message we're sending them right now. So we're gonna take questions from the prompt. We've got a number in here, and I'm going to try to sum up a couple of the questions that are coming in. >> One for for for Pat on some of the themes in your talk about workforce development. For, for years, the Fed relied on, and still does to some extent rely on the framework invited in the Phillips Curve, which suggests that as the unemployment is, unemployment drops as resource slack is diminished across the economy, that should eventually put pressure on, on wages. You should say You should see inflation respond. And really in 201520162017, inflation was below 2%. The Fed was raising interest rates out of a view that monetary policy operates with a lag, you have to be somewhat preemptive. And so higher rates were needed to keep inflation from getting out of control. And in fact, in 2018, it looks like that might be coming to bear. Inflation gets up to 2%. The Fed keeps raising interest rates. Given what we've seen since then, the question here is, does that framework still, has that framework still operative for the Fed? We now have the unemployment rate holding well below half pointer. So below Most of you and your colleagues estimates of the so-called natural rate of unemployment. And yet, inflation doesn't really seem to be breaking out. What, what do we make of that? Is the Phillips curve dead? Should some other framework be use? Now is the workhorse model for >> monetary policy. Yeah, so it comes down to what? Philips curve. So if you take the traditional felt curve between unemployment and inflation, yeah, some people would say it's flat, other would say it's that it has not been a good predictor of inflation now for decades. So there's not a recent phenomenon. But if you look at, say, the wage Phillips curve for wage, wages versus unemployment, you see a little bit of action, et cetera. So it really depends on which Philips curve you look at. But it gets back to a more fundamental question which they profession, the economics profession has been debating now for quite a while, inflation dynamics generally. And I'm going to oversimplify Some of the recent work coming out of the San Francisco Fed elsewhere. If you think about, and I'm going to grossly oversimplify this. Do you think about two sectors of the economy, cyclical and a cyclical in terms of prices that which moves with say, monetary policy and that which doesn't work, doesn't healthcare. 20%, almost 20% of GDP. Those prices are set by the government essentially. And so there's no short to medium term impact. There's a longer term impact because the cost of capital will affect plant and equipment and healthcare and so forth. Recognize that, but they don't move much with what we would do in monetary policy. Take those away, look at the cyclical components of the economy, then you start to see some action. So again, broad Phillips Curve that we all learned in your macro one-on-one, that flat the debt. But I think there's nuances to this. They're actually important, that said, and allow the models that we use for prediction, whether it's furthest our canonical model or other models that are in the profession. These need more work to start to incorporate some of the insights we are getting with respect to inflation dynamics. I guess it's a little bit of a silly question because no one's suggesting that rate increases are on the table right now. But if you look at the Summary of Economic Projections >> You know, the the the modal forecasts still has rate and rate increase or two over the, over the three-year window. So the question I think I'm asking is, on what basis would the Fed decide at some point? Again, not this year, maybe next year, maybe the year after we need to raise interest rates. Or you're looking at something besides this relationship with unemployment. Or you're looking at financial stability concerns or inflation expectations. What would you need to see to say, OK, target achieved? >> Tie it to so I can't give an answer for it, not fed and I can only give it for you or myself. So I think there would be inflation starting to show sustained growth. The two are above, right? And that, so we talk about in our recent statement, material change. That would be the material change, we actually start to see inflation moving to two that's starting to accelerate in some way, shape, or form. We haven't seen that yet because the other thing, and it's a good problem. We worry about it. We the fed watchers and the fed will. But if you look at where we are right now, at the unemployment rate, where it is in America, this is only a problem for us. The average American say, hey, relations good, like I have a job. This is a good problem to have. It's a problem from a policy perspective for the tools we have. But if you look at this situation that we're in right now, it's a good, good situation. So no, I don't think we should take precipitous action in either direction, but you hit on something else. While not technically part of our dual mandate, and our dual mandate is maximum employment stable prices. There is a third leg to the Fed, which is financial stability. That is, if markets become unstable, that will have a transmission channel, it will have an effect ultimately on unemployment. Again, there are some potential signs of weakness, but we're watching them. Leverage lending is very high. So in beyond what Michael showed in terms of overall debt levels within certain sectors. For awhile, we worried about commercial real estate. That's less of a concern. Now that leverage lending seem sort of resonant, most of that concern is not in the regulated industry, it's in the shadow banking industry that we're concerned about. And then we come back to your point about what we think that neutral rate of unemployment is. We've been surprised, I've been surprised by how low we can go. And there's some theories about why that is >> we can get this low. Again, I don't think we should really try to stop this from happening right now because Americans are getting jobs. But again, we have to be cautious because there are some potential financial stability issues that we have to keep watch. So Michael, I want to ask you about this maybe from a different slant, which is if you look at the Trump administration and maybe the PAL fat over the last three years. Start in 2017, monetary policy, the dial was being turned towards less accommodation. Regulatory policy, the die was being term maybe a little bit in the other direction in favor of loosening some of the regulations. After after several years of Dodd-Frank implementation, then we get to last year and the monetary policy dial. Now, after again, removing some accommodation that now gets turned back and the other direction, does that suggest to your slide earlier, some of these concerns about corporate borrowing? That it's time for regulatory policy, monetary policy, which we thought was going to get more restrictive, was interest rates are going to 3%. Short-term money was only 3%. Now that's not happening. Does that call for a rethink of where regulatory, or maybe you want to call a macro-prudential policy is going >> regulatory. A lot of a lot of the regulations from previous administrations had been rolled back under the Trump administration. Even capital requirements, certain lending requirements had been rolled back to free up capital. Specifically, when you look back over the course of the, of the last year, I've always try to, I try to figure out where the Fed might be getting it wrong. They say over and over again that their data dependent and as they were raising rates, I think it was consistent. I think that they may have underestimated the effects of this trade war in the way that it slowed the economy, the pressure put on the economy. By the time it showed up in the data. Perhaps they saw that they had gone too far. Did they make a mistake? Probably not on the data they had at the time when they took their monetary actions and had their interventions. So, you know, I don't, I don't know that the, I don't know that the fed got it wrong. I think that President Harker was particularly oppression when he was against that last hike there because he saw, I mean, there was actual data there that perhaps the Fed was, Others were being more stubborn about rolling back. Regulation is, is adding oil to the gears of commerce rate, a lot of regulation can just be sand in the gears of commerce. We always go too far. We always go too far. You know, you get to a 20082009 and you get a Dodd Frank bill that just seemed to overreach and so many different ways. And then they roll it back and, and they'll probably go too far this time, but there is more rolling back of regulation that could be stimulative. Additionally stimulative so that you not only have the fiscal stimulus, which clearly we have, we have monetary stimulus which is at a trickle, but I think still there. >> There is a regulatory stimulus could increase, but it can get to a dangerous point. And for either Dan or Michael. So tomorrow Fed Chairman powers up on the hill for today's testimony. He's been pretty well received by a lawmakers of both parties. You haven't seen republicans join the President in attacking the Fed. Does it matter that we now have this environment where if the President wants to rough up the fat, he can say what he wants. And people in the markets wonder whether the Fed is being influenced by politics, is that, you know, that's a, that's a norm that we had for about 25 years. It's gone. Does it matter that, that enormous gone >> you, I think it does matter in many ways because we build institutions in ways that are designed for their independence. And even sometimes, as we discussed earlier, the rules are written in ways that would make no sense applied in the private sector. But they're done that way because it is the, there are goals of that institution beyond its functioning purely for a most efficient economic or political outcome. That sometimes that, that most desirable outcome of the day is not the one that's best for the country in the long run. And it's the eight testament in many ways, I think to remember that the American systems institutions are also about the people at the tiller. So when you talk about someone like Chairman pal, who perhaps has that thick skin and can shrug it off that those are the, where you have people in those institutions existing is profiles of encouraged in some ways too, to remind us that there have to be people in the judiciary, in economic bodies, in certain regulatory bodies that have to have that long-term picture of the national interest rather than one party or election cycles, interests and the independence of the Fed is so important. It is critically, vitally. >> It's important that we not allow that monetary policy to be allowed to be politicized. Do you do you know this was in the Tampa Tampa Harold. I read it in the Tampa newspaper. In order of popularity, a colonoscopy is more popular than the Congress of the United States. Where does that, where does the media fit? And actually, maybe I don't know, maybe I don't want to know. Do we really want them arguing about where interest rates should be for their districts and their re-election. For god sakes, keep these companies and this great group of very bright men and women independent of these political forces. But another question that's come up, yours, >> can you reconcile this? As some people call this a spurious correlation, but others are saying that the stock market has reached record highs following this period in which the Fed has intervened heavily into the repo market, is buying bills. You call it QE for what do you make, michael of this idea that the Fed's reserve rebuild over the past four or five months has been igniting some kind of risk rally. To me, it's more that they solved a problem that was a problem of overnight liquidity in an arcane area of the markets called the repo market, the repurchase agreement or market that allows for overnight liquidity among banks. >> The Federal Reserve kind of solved a problem there. Rather than actually throwing money into the economy, they solved a problem getting at the root of that problem and would take a whole nother academic committee, I think to really figure out what's, what's what's what's going on. But probably Pat could answer that part of it a little bit better. I don't think they're entering into QA. They were addressing a problem. Payment. We're not at the follow-up question. There is, if you look at today's operations by the New York Fed repo now in aggregate, is actually down to its lowest level since September. So that suggests that in fact, the Fed has been able to remove as they buy bills to resupply reserves. >> Through these bill purchases, they are able to withdraw repo. But the question going forward is, as you, as you calibrate what Reserve demand needs to be, there are questions about what's the best way to do that. So one way would be you could oversupply reserves. You could say, you know what we think during normal, during the, the lowest periods in a year when reserves get to 1.5 trillion. So we should just be above that at all times. Another idea would be what Randy corals, the Fed vice chair for supervision, talked about last week, which would be to find ways to reduce demand for reserves to make banks more comfortable substituting treasuries for reverbs. Reserves. A third option, which I know you've talked about some >> as a standing repo facility, which would actually be to create a new lending facility so that during periods of stress in the repo market, banks know that they can exchange treasuries and reserves of, of those three approaches or go to none of the above? How do you think about the best way to fine tune this new operating framework that the Fed has. Let's talk very briefly if they really level set everybody here. So we hit the peak of our balance sheet during the crisis in the aftermath. And we committed to start bringing it down to a level of reserves that are ample, but no more than necessary to conduct monetary policy. What that level was. We didn't exactly know. We did lots of research trying to understand. But to be the demand for reserves was by financial institutions. And by the way, five institutions in the country have 80% of the reserves. So they, those five really matter. So we didn't know exactly where that was. We knew when we got to where that level was, market to get choppy, we got there. And so we then committed to growing the balance sheet, the reserve level, to keep up with the growth in our liabilities. Now our balance sheet, again, just to quickly summarize, consists of not only the reserves we have, but our currency liability stuff in your pocket and treasury general count, we are the government's back. That level can swing a $100 billion in a month. I mean, that level of volatility is pretty high, right? So we need a buffer there to keep the reserve level such that we don't see these liquidity issues emerge into market. We knew what that was. We're growing now, the balance sheet and reserve levels consistent with organic growth of the economy. At this point, that was the goal. We jumped it up. And so this is not Q0. I mean, this was never the intent, that's not content that said, how do we deal with these liquidity issues that hit every quarter, every year? End, right. There are a lot of likely suspects. One is nobody comes to the discount window. Vice-chair quarrels mentioned that the other day. The stigma issue is very real and that is one of the concerns. Other than there were enough reserves in the system, but people were trading them because they didn't believe that when we say in regulation that high-quality liquid assets, our reserves and treasuries. People sometimes said, well, maybe my regulator doesn't quite believe that we do. And so this is one of the issues we need to try to understand. Now, what are, what's clogging the pipes here in this system? It could be a regulatory issue, it could be the level of reserves, I think we're fixing that or there could be other facilities like the standing repurpose oldie. But for me, if we do something like the standing repurposed to solely, I do not want to disintermediate the private market. So we'd have to, it, it's not so much, whether we do it or not, elbow that's being actively debated. It's what are the design parameters for such a thing? In my mind, we do it as a backstop. That is people who come to us when the private market is hot and heavy, right? And there are issues in the private market. Not as a regular course of business. I don't think it's our business to disintermediate the private sector in the repo market. Now that's a pretty wonky answer, but I, if, if I, if we do a standing repo facility that has to have that texture. I think the panel for, for wonderful presentations this afternoon, for a great discussion. Thank you for your participation for attending today. And I will throw I will turn it back to David David. To close this out. >> Thank you all for attending today. Good evening. My name is Dave lines and I'm the last person keeping you from the bar tonight. So hope you all enjoyed this year's event and the new venue. I'm looking forward to your feedback when we send the electronic feedback out via email. Thank you. It takes a lot of hard work to put this event together. So Jen Miller, Embry Walsh from lines companies. Thank you guys very much. Susan Sherry and Jennifer Gough from the center. Thank you. And Kim Reagan from the university, our speakers, President Harker, Michael far, Dan Mojave. Thank you very much, Nick, thank you for moderating. Hope to have you back again next year and that's about it. So thank you guys for attending. Have a great year. And refreshments are being served around the corner to thank you all.
2020 CEEE Lyons Economic Forecast.mp4
From Robert Diiorio February 14, 2020
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Economic experts shared their predictions for the coming year at the
2020 CEEE/Lyons Companies Economic Forecast, held at the University of
Delaware Audion in the Tower at Star Campus on Feb. 10, 2020.
Speakers include:
*Keynote, Patrick T. Harker - President and CEO of the Federal Reserve Bank of Philadelphia, former president of the University of Delaware
*Michael K. Farr, President - author, CNBC contributor, President and CEO of the investment advisory firm Farr, Miller & Washington, LLC
*Dan Mahaffee - senior vice president and director of policy at the Center for the Study of the Presidency and Congress.
Nick Timiraos, National Economics Correspondent for The Wall Street Journal, moderates.
At the top of the event, Bank Commissioner Robert Glen was presented with the 2020 James B. O'Neill award for Excellence in Economic Education and Entrepreneurship.
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- February 10, 2020
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