Fall 2021 Economic Outlook Forum | NYU Stern Center for Global Economy and Business

Fall 2021 Economic Outlook Forum | NYU Stern Center for Global Economy and Business

[Music] okay so we're gonna get started uh good afternoon everyone uh it's my pleasure to welcome you all here my name is benki venkateshwaran and i'm delighted to welcome you all to the 19th nyu stern economic and market outlook forum the forum is hosted by the center for global economy and business at stern which serves the university through outreach to the broader community including academic policy and business worlds as well as students and alumni uh we're pleased to have the students several a place to have in the audience several students and faculty from all over nyu as well as many alums i want to welcome you all and thank you very much for joining us today's session will last 90 minutes it will begin with presentations of about 10 minutes by each of the panelists about economic and market prospects followed by uh a q a session so we'll finish by 6 30 pm uh eastern daylight time for the q a session i would encourage all of you to enter your questions through the q a feature in moderating the session i'll try to curate and kind of limit repetition by grouping similar questions together please add your name we're not going to permit anonymous questions with that i'm going to turn to introduce our distinguished panelists starting with dana peterson who is the chief economist and center leader of economy strategy and finance at the conference board before that she spent several years at city where she served as a global economist as well as in the public sector at the federal reserve board in washington dc she's a board member of the national bureau of economic research first vice chair of the nyabe and the member of the nabe as well as the council of foreign relations she holds an undergraduate degree in economics from wesleyan university and a master of science in economics from the university of wisconsin-madison welcome our second panelist is peter hooper who is the global head of economic research at deutsche bank an institution he joined after a very distinguished career at the federal reserve board in d.c hooper currently serves as a member and former chairman of the economic advisory committee of the american bankers association he's a founding member of the u.s monetary policy forum and a member of the economic leadership council at the university of michigan uh among several other uh he holds a phd in economics from from michigan and has published numerous books journal articles and reviews on economics and policy issues finally our third panelist is ethan harris who is the head of global economics research at bank of america before which he was the chief us economist at lehman brothers and he's also spent time at barclays and jp morgan as well as at the federal reserve bank of new york where he was an assistant to the president and head of the domestic research division he's a founding member of the us monetary policy forum a member of the world economic forum community of chief economist and a member of the economic advisory committee of the american bankers association he owns a phd from columbia university and is the author of ben bernanke's fan welcome peter and welcome ethan welcome to all of you um so with that i'm going to kind of turn it over to each of our panelists we're going to start with dana followed by peter and then ethan for uh initial remarks after which we'll will kick off uh so with that dana the floor is yours professor thank you thank you so much for the invitation going to share okay so i'm going to start at like 50 000 feet then come to come down to around 30 000 feet um oops let's see all right there we are so just starting off with what's driving the global economic recovery the us and china so uh this interplay between the u.s and strong demand for for consumption of goods and china's willingness or rather inability desire but inability to produce all the goods that u.s consumers want is generating inflation globally so what does this mean well um essentially with the onset of the pandemic um government restrictions a fear factor combination of things meant that consumers in the u.s decided that they were basically just going to consume goods and not consume in-person services initially because they couldn't and then over the period time of the pandemic and certainly up until now with the delta variant swirling around many people are choosing not to engage in in-person services so there's still heavy demand for goods meanwhile in china initially when the pandemic affected china the first round there were closures of factories and supply chains became very disrupted fast forwarding to now once again factories are closing in china as well as asean nations that are producing goods and then even if the goods get produced they're getting stuck out at sea because you have shortages of shipping containers and once it reaches the shores of the us there's not enough people to unload those ships and then there aren't enough truckers to move the goods across the country so all those factors um are contributing to what we're seeing in terms of inflation now a lot of these are some of the inflationary pressures that we're seeing are transitory while some we think are a little bit more persistent and i'll get into that in a second so what else is driving the u.s economic recovery copious amounts of monetary and fiscal policy stimulus the charter on the left-hand side everyone's familiar with that's the fed's balance sheet which the fed is signaling that it's going to start tapering asset large-scale asset purchases meanwhile the federal government if you take a look on the other side has provided some liquidity supports but mainly copious amounts of spending in the form of checks to individuals and households families with children as well as ppp uh money to visit and other supports to businesses and state state and local governments so that's providing you know those stimulus met those stimulus measures are providing plenty of liquidity for households and to a lesser degree of businesses to engage in this spending um where's the u.s to the role of this recovery in terms of the race well the u.s has already achieved its pre-pandemic level of gdp growth so at this point we'd say the u.s is no longer recovery but in an expansion and so we've seen very strong gdp growth in the u.s even with the delta variant curbing activity right now we still think the us can probably go around five and a half percent uh this year which is quite strong especially when prior to that we were growing around two and a half percent um this is what i'm talking about if we look at global goods consumption the u.s is that navy that navy blue line on the left-hand side is driving consumption and of goods and then we look at the other side of the page services consumption this is through the second quarter was starting to tick up a little bit but certainly we know from a more uh real-time data that consumption weakened um a little bit associated with delta but also because of these backlogs people are ordering things and not able or at least not able to see those orders fulfilled meanwhile you have china trying its hardest to export goods to the u.s and this these data unfortunately a little bit dated this is through june but we know from anecdotal uh reports that um that exports have weakened uh from china and also several asean economies contributing to inflation so uh here's a delta variant um and you can see that right now the u.s and the uk are really driving uh the increases in cases associated specifically with the delta variant the good news is that the us has done fairly well with 61 percent of the population vaccinated well at least with one vaccine still we're only about 50 in terms of total vaccinations and because of this we're seeing cases rise right and so that's interrupting economic activity um meanwhile you see restrictions in the u.s have increased since july so the delta variant is still really affecting the u.s um i'm going to skip over some of this stuff because it's not really pertaining to inflation but we are seeing that certainly with the housing market very strong demand uh very weak supply um and so prices have really spiked um though we don't think that there's going to be um necessarily another financial market crisis associated with some kind of housing crash um and that's because when we look at metrics for consumers they're better uh relative to 2005-2007 and also when we look at who's holding these mortgage assets you have the federal government i.e the taxpayer on the hook but nonetheless the federal government implicitly will back the gs um you also have banks with better uh risk metrics so for example tier one risk based capital is at the highest percentage ever which is great and then when we look at mortgage trusts which are reits they can fundamentally be that that mark can be backstopped by the fed in terms of mortgage-backed security purchases now we're coming down to 30 000 feet here in terms of u.s inflation the reason why i gave you that back story is everyone's complaining about inflation but everyone can just look in the mirror in terms of you know playing their role in helping these inflationary pressures that we've seen throughout the pandemic so very strong demand for goods meanwhile you have backlogs for these goods and so that means prices are rising along with them meanwhile on the other side of the page you can see indonesia vietnam malaysia taiwan factory activity just collapsed associated with a delta variant so this is telling us that whatever inflationary pressures we're seeing and yes the cpi data today saw a smaller than expected month on month increase we could see a resurgence of those big um increases in month on month prices but still in all the year a year prices are probably going to remain pretty elevated for some time and i'll define that um but again some of the factors that are inducing inflation in our view are transitory meaning directly a result of the pandemic and should ease once we're beyond the pandemic and then there are other factors that we believe are more structural meaning there's been a material and significant shift in the way things are done such that these pricing pressures are going to be with us a little bit longer so let's take a look at producer prices here so i mentioned truck transportation and freight and containers right so there was somewhat of a container shortage before the pandemic it's only worsened because of amid the pandemic um and meanwhile we're seeing uh prices for trucking rise because of all the demand for goods and not enough people right so that should fade certainly as consumers in the u.s feel more comfortable going out and engaging in in-person services and have a more balanced diet between consumption of goods and consumption of in-person services meanwhile if we look on the other side we think that uh the elevated lumber prices even though they've come off they're still up 60 percent year on year and also for chips those things are probably going to be with us those those inflationary pressures why lumber and plywood well work from home is here to stay and um so there's very strong demand for people to move to bigger places where they can actually have an office right and then also we have millennials um many of you watching or some of you depending upon you know how old you are are millennials and millennials for many years uh were held back in terms of engaging in those those milestones of life but now millennials many of you are working many of you have been able to pay down some of your student loan debt some of you have been able to save you're paying off you're having children and you want to buy that first house and so between work from home and millennials we think there's going to be continued underlying demand for housing meanwhile if we look at the chips well there the pandemic has created a chip shortage but even once the pandemic is over digitization has happened consumers are purchasing things online they're enjoying movies and things all sorts of things online and they're into their gadgets and they're going to continue to desire those things which require chips and it takes five to ten years to build a new chip factory so given that we're thinking that these types of inflation at least for producers are going to stick i'm going to skip over this it's a little confusing now let's take a look at consumer prices and this is what the prior chart is telling us that there are certain factors certain pressures on consumer prices that we think are a function of pandemic and should cool off um and then there are other prices that are also pandemic related but are consistent with reopening of the economy so if we look at consumer prices increases based on backlogs certainly for motor vehicles and gadgets a lot of that's a function of chips the chip shortage but also very strong demand so i just mentioned in the previous slide that some of this stuff is probably going to be with us so i would suggest that yes consumer prices are rising on backlogs for these two but we may not see as much of a cool off because of the chips earned meanwhile with reopening bars and restaurant prices and also air transportation the ie airline tickets have surged and that's a function of the fact that these businesses have been closed all of a sudden uh earlier in the summer there was high demand for these types of firms meanwhile commodity prices were sky high for food and energy and transportation and guess what you couldn't find people to work for you right so wages wage pressures increase and all these costs businesses basically passed on to the consumer but as again if we have a much more balanced diet of goods and services consumption this sort of uh pricing power these pricing pressures and also the pricing power that these businesses are engaging in is probably going to fade when we think about home prices yes on the left-hand side we have a case-shiller home priced index and that has pretty much gone vertical again a lot of that's strong demand for fundamental reasons interest rates are low um millennials want housing and work from home meanwhile supply is insufficient we've under-invested in housing since the financial crisis there's also a lack of buildable land and few laborers if we look on the other side of the page rents meanwhile have been depressed during the pandemic now our view is that these prices are probably going to normalize for rents for a couple of reasons number one all the folks who are having difficulty finding housing in the short run probably going to look to rent right so that's going to place upper pressure on rents also all the young people who went home to live with mom and dad through the pandemic are starting to think about going back to the cities right and so that's going to drive up rent so we see upward pressure from uh rental costs and and oh you know oer and the cpi and the equivalent and the pce um and so that's going to place upward pressure on prices over the next year or so we think um so what about the fed um circuit breakers i think that there are several sets of metrics that the fed is watching very closely such that if any if one or more of these uh become out of control or untenable the fed may blink and i'll explain what i mean by blinking in a second so one key circuit breaker is financial market inflation expectations those inflation expectations seem like they've come off a little bit and they are not matching what we're seeing in terms of core pce inflation so markets the fed might interpret this to say well markets are thinking that yes some of these inflationary pressures are transitory temporary they'll go away when the pandemic goes right and so um this is not becoming embedded another measure this is the competition the university of michigan but you know we're all friends here because the conference board also has inflation expectations but we don't have a long-term inflation expectations measure and certainly um when we look at this there's been the delta over the course of the pandemic seems pretty severe you went from almost no inflation expectations to yes inflation expectations being higher but historically speaking long-term inflation expectations which are function which are a factor in actual inflation are pretty low and so the fed would look at this and say okay you know inflation expectations are still historically low but we're going to pay attention to the deltas here another circuit breaker is really where we are in the labor market recovery because the fed has a dual mandate and that one of the mandates is full employment and that is not just defined by whatever you three or the unemployment rate is doing the fed cares about a ton of labor market metrics and when the fed looks at the labor market right now it sees very low participation rates among men and women half of the more than half the people who are unemployed are women and unemployment rates relative to the natural rate of unemployment for black and latino workers is still really high even though the national unemployment rates come off so the fed is going to be looking at this and essentially you know they have this this kind of full sum view of what full employment looks like and as long as full employment is not wherever they think it should be that's gonna give them some pause in terms of the degree to uh removal of accommodation also you know the phillips curve i think uh you know whatever people think about it here we have three different regimes right and the latest regime well i mean the second latest is 1995 through uh march of 2021 and so those are those gray dots and so you can see there was a very a much weaker relationship still there but a much weaker relationship between low unemployment and high core consumer price and inflation so but what i did was i broke out the readings from april through july of this year and they seem to be pretty elevated in a prior regime so the question is are these you know readings just or are not just but mainly a function of transitory factors or have we really leapt up into a higher regime where we're going to see higher inflation so that's a key question so i think the fed's going to be if the fed has this chart they're going to be watching this chart um another circuit breaker is growth right and not just the headline but the composition of growth and so far the composition of growth has been pretty lopsided mainly consumption uh uh of goods um and you can see that here i mean we've seen a little bit of a switching over to services but still in all the levels of services consumption as i showed you earlier well below where they were pre-pandemic and also inventories um where businesses basically uh shipped everything that they could uh ran their shelves bare and now they're trying to restock but guess what it's very difficult to restock when you can't move product right across the seas or you can't produce it and whatever's produced you can't move it you can't ship it um so i think as long as the growth is is still kind of lopsided the fed might have some pause but also equally important is where's the output gap are we looking at a notably positive output gap next year and so that would give the fed some cover to say well you know maybe we can move a little bit more quickly um another circuit breaker is what's going on in wage inflation so on the left-hand side we've got the eci so this is essentially through the second quarter because that's as far as it goes but you can see that most of the wage inflation is in areas that kind of make sense and are associated with the pandemic but the key issue is um do you create this uh negative cycle of wage inflation that turns into consumer inflation and in turn becomes more wage inflation you have this inflationary spiral so i think you know the fed's going to be looking very closely at that and then finally you know the last circuit breakers expectations of economists what are we thinking and so far um street economists are anticipating that the next well at the first full rate hike is in the second quarter 2023 um and the fed has worked really hard to kind of decouple quantitative easing from interest rates right and the fed's saying look based upon growth and you know growth has been astounding for the u.s um even though very lopsided but you know we've done well based upon that we can start um tapering assets maybe you know before the the end of this year we'll find out more news of the fed uh next week um but then there's still this nagging question of inflation and here i have the streets latest unfortunately i think this was from august um uh what what what was in bloomberg in terms of expectations for the end of year uh core inflation rates and then you see what the conference board has we're above consensus and then you can see in that red box uh what the fed's been anticipating and so the fed um you know i think is putting a lot of weight on the transitory element and then with the average inflation targeting regime the fed is saying well you know it's fine if we we don't go back to two percent as long as we're hovering somewhere around two percent why because we've missed for so many years um and so there's tons of questions and i think you know the key thing um and i'll stop sharing is um with with the removal of accommodative policy um can the fed adequately communicate this decoupling between quantitative easing and interest rate heights and also manage expectations around inflation right do people feel comfortable the markets feel comfortable and the consumer feel comfortable that the fed can can address inflation especially if these pressures persist for longer amid the delta variant surge or not and so i guess i'll stop there but you know a lot of questions here in regards to um inflation in the u.s and how the fed's going to respond thanks thank you sure dana thank you so much our next speaker would be peter hooper peter can go ahead and share your screen and take it away uh thanks very much mickey and uh i anticipated we'd get a a comprehensive and efficient uh presentation from dana so i'm going to on the overall outlook i'm going to focus on on the inflation side a bit more and take it from a historical perspective so just just to kind of review the the consensus view here there the recent surge in inflation is very much transitory uh inflation expectations are although they've been rising are still well anchored uh inflation is expected eventually to return to two percent or lower a year or two out the fed is generally not expected to raise rates until sometime in 2023 a couple years from now and all that said as people present their consensus forecast in the same breath they say the the upside risks are rising so i'm going to focus on those upside risks a bit and again drill down to a couple very interesting charts that dana presented we'll look at the output gap and uh and that key driver of the phillips curve how it's changed pre and post the volker period uh we'll take a look at uh some of the upside risks from from the massive fiscal stimulus uh uh giving us the risk of a repeat of the the mid 60's takeoff in inflation and then finally a few a few comments about the fed's new flexible average inflation targeting regime and how that could get us into some risks as well so to start off the output gap look at looking at things over a little longer history than dana put up there but going back to the 50s during the 50s 60s and 70s this uh this measure of real gdp relative to to potential averaged well above zero the economy was generally on the hot side output running above potential on average over that period and it did of course lead to high inflation as well as we'll see uh volcker came in uh we had the volker disinflation and the fed shifted pretty dramatically from from being an institution that was willing to react to inflation to one that wanted to act preemptively to avoid inflationary situations so in the period since 1980 the output gap has generally averaged well into negative territory uh the economy has seen a lot more slack than tight periods the the peak level that we got over the last four decades was in the late 90s when we reached just about two percent two percentage points um and of course what we're seeing now um is is uh most consensus forecasts get us back somewhere into the two to four percent range on output gap um uh over the next few years and it doesn't take too much to get us into a higher growth scenario which which would get the output gap back up into the five six percent range which uh clearly would spell some danger so just to go back and and look at the last uh big inflation scenario scenario that we we've had um this zooms in on the output gap during the 60s and early 70s again the dark line there the the output gap coming out of the 1960 recession rose gradually economy recovering um by the mid 60s it had passed through three percent uh positive that's something we haven't seen since then um and on its way up to five six percent uh now the the inflation rate um core pce uh on the left scale there uh during first half of the sixties course remained quite subdued for much of that period uh in the one to two percent range and and as as the economy got into overheated state uh it began to rise and certainly in 66 started the year at one and a half percent ended the year above three percent and and was moved up from there now now the fed uh uh reacted but very mildly during this period uh the economy continued to motor along at an output gap three percent plus until it really stepped on the brakes in the late 60s bringing on a sharp drop in output the recession of 1970 which eventually did level off and eventually slow inflation although only temporarily because the fed turned around pretty quickly and inflation rose again so um looking beyond the we've been focusing on the box in the lower left uh of course we went into the the high inflation period helped along by some oil shocks and some other factors this brought along uh paul volcker uh and the disinflation uh and the fed of course uh succeeded uh remarkably well in bringing down inflation and getting it under control in fact over succeeded to the point where inflation over the last couple decades has been running below desired levels average core pc inflation averaging uh noticeably below two percent uh and inflation expectations longer term inflation expectations actually moving uh lower uh a bit below for comfort as well uh not sure if you can see it at the very end here but uh um this this very low inflation period brought on the the shift in fed uh policy regime following a policy review during 2019 in 2020 we got the shift to flexible average inflation targeting um just before inflation surprised substantially to the upside now the the the fomc's median projection inflation for this year in december last year was 1.8 percent uh the consensus was a bit above that but uh no one was expecting to get it back up into four percent plus on on year over year for pc inflation this year yes it is transitory for many reasons but there are a couple couple risk factors going forward that we need to be mindful of now i'm not talking about risk of getting back up into the 1970s near double digit inflation i'm talking about a risk of the repeat of what happened in the box at the left the the the mid 60s takeoff one one one risk is is uh of course the inflation expectations which are uh what what it's showing in this chart is uh the fed's common index of inflation expectations an average basically an average of a number of different uh uh surveys etc we've done one in-house that's a little more up to date basically inflation expectations are now back about in line with the level uh maybe a little above its pre-2014 average but about in line with a level that would be consistent with the fed's inflation objective but it has risen very very very rapidly and if inflation stays somewhat elevated given given the adaptive nature of this this series uh inflation and expectations are basically a function of what's been happening to inflation itself uh in recent history um they could rise further and that and that then feed into an inflation process that's one risk the bigger risk i think is that we get back into a more heated uh level of the output gap and here drilling down into what what all those fiscal stimulus that we've gotten has done uh personal income growth shown in this chart nominal personal income normally declines in in recessions this time around as you as you see at far right it's it's uh acted uh uh very very differently we've we've seen a an unusually large increase in personal income during and following an economic downturn uh the of course the reason here being being a series of several massive fiscal support packages uh giving us a huge gap between take home pay ex transfers and what's actually happened to personal income um a huge huge boost which has had the effect of uh raising household saving rates tremendously the the household saving rate uh going into this uh recent period had a baseline level around seven and a half percent uh that was elevated in part because of cutbacks and spending during cobin but elevated tremendously because of the series of fiscal stimulus packages now the the the the net effect of this stimulus has been to raise the accumulated saving of the last year and a half by about 10 percent of gdp above where it would have been as a seven and a half percent baseline the consensus forecast going forward basically assumes that this uh this saving is going to be treated uh largely as wealth it'll be spent out very slowly over time saving rates are not going to fall uh appreciably um and that that uh helps bring say the the economy in for a soft landing slows growth uh takes out some of the inflation pressure allows the fed to to move uh relatively slowly uh over time um i think in addition to the the income uh risk uh we've we've seen uh uh large increases in household wealth uh during this cycle uh last year net net worth relevant income rose net worth rose by nearly a year worth of income and as dana noted as well on the right home prices have continued up at a pretty rapid pace the stock market has continued up so so um certainly the the upper income uh portion of uh uh households which account for a pretty large share of overall consumer spending uh have a lot of uh wherewithal to to spend uh a reduction in the saving rate by two or three percentage points is is enough to get us a long way toward that uh substantially higher uh path for the output gap that we looked at earlier let me just finish with an observation about the the fed's new flexible average inflation targeting it hasn't been terribly clear exactly how it's going to implement this this target that we don't have a i mean folks are basically assuming that the fed is going to be averaging over over something like a three to five year period and look back and on that basis uh inflation is already running above targets so there's there's not a lot of room to run and if if inflation does persist somewhat higher up in the next year or pick up significantly more than currently expected as we get into 22 uh latter part of 22 and 23 with some additional rise in that output gap the the fed's going to have to if it's going to live up to a a three to five year look back and and stick to its guns it's going to have to act more aggressively and and you you you increase the chances of seeing the kind of uh mild recession that we saw at the end of the 1960s following that that liftoff uh inflation that we had initially of course the risk of getting into something a bigger problem is if if the fed has a a longer look back if there's more patients if if we're looking at something like a 10-year moving average of inflation we have quite a ways room to run and that raises the the chances of i think things getting embedded uh a a bigger inflation down the road and uh something moving maybe toward what volcker had to deal with with a bigger a much bigger cost to the economy eventually so just just to wrap up uh bottom line just very simply inflation risk rises over the next couple years if the lagged effects of fiscal stimulus further elevate the output gap and if if the fed is unduly patient about inflation overshoots under its new flexible average inflation targeting regime thank you thank you so much uh peter so our next panelist the next speaker is eaton the floor or rather the screen is all yours all right thank you very much and i am not going to share charts with you today um i think we're charted out by now uh i i have a very similar view uh to peter and and dana and so i what i would like to do is kind of zero in on you know take a little bit of a step back and think about why this is all happening because i think we all agree that you're gonna have a you've have tremendously stimulative policy a very strong economic recovery and rising risk of of a significant increase in inflation and so what's driving all this uh in terms of the thinking in washington uh and i want to kind of really get to the guts of this um i think part of the issue here is as peter pointed out people have kind of forgotten their history lessons i mean the 1960s is a long time ago and what is informing views around the economy particularly in washington is what happened in the last business cycle when the economy refused to recover and it just took forever to get the economy back to full employment and you didn't seem to be able to get an inflation higher that kind of failure of policy in the last cycle is informing decisions today uh in a in a in a very big way i think that's the wrong analogy and this is the fundamental disconnect in washington right now if you look at the outlook for the us economy this looks nothing like the last cycle we're coming out of a very quickly out of recession we have three times as much fiscal stimulus as we had coming out of the last cycle we have more persistent fiscal stimulus and in fact if you look at um at every other uh central bank around the world we we and every other fiscal authority around the world we're the most dovish the most devised central bank most dovish uh uh fiscal authorities with uh unprecedented policy regime shift by both monetary and fiscal policy and if you look at the fundamentals driving the economy right now not only do you have massive monetary and physical stimulus but you've built up this these kind of momentum effects in the economy i mean the recovering the economy has resulted in a collapse of inventories because companies can't keep up with demand and so you've got this pent-up demand for increased production because inventories are so low as peter talked about you've got all this excess savings sitting around here from last year and what's striking to me is he talked about the two trillion dollars in excess savings what's really striking to me is how much of that is still sitting in people's bank accounts so last year when you couldn't buy services when you're getting all these stimulus checks and all this fiscal money coming out where did all that money go well it didn't go into the economy it went into people's savings accounts and checking accounts there's actually three and a half trillion dollars of dry powder sitting there in bank accounts and as peter pointed out um if it was really wealth that they're not planning on spending at all why didn't they just leave it in the bank right so there's there's a lot of potential delayed fiscal stimulus as the economy reopens from all that fiscal policy so it's not just what we did in fiscal policy last year or what they're contemplating this year it's the leftover stimulus on people's bank accounts and then the final area where you see this pent-up activity is the labor market right why why did the job market slow in august is is the is the economy stumbling to a halt no it's because there's a big limited sup a lot of constraints on supply so if you look over the last six months or so businesses have increased their demand for workers but they haven't been able to fill the jobs so there's roughly 2 million unfilled jobs above and beyond the normal level of job openings in the economy and in august that constraint on supply workers got particularly bad because kova got worse so you've got a pent up demand for workers and if you look so you look at all these things you look at the delayed spending you look at the inability to rebuild inventories the inability to hire workers all that stuff gets unleashed if coving gets under control covid right now is having a very big impact on the supply side of the us and global economy think about what's going on in the service sector okay so um if i'm a high t worker in a high touch industry which you know like a restaurant or a hotel or or something that involves interaction heavily with the public and i'm a risk-averse person i don't want to work i'm going to stay home if i don't if i'm not worried about cold if i'm a relatively relaxed about the risks of covet i've already gone back to work i'm already working at the restaurant so you can imagine what's happened to that remaining group sitting on the sidelines when cove had picked up they all looked at this and said whoops uh maybe i'll wait a little longer to go back to the job market so it's it when people talk about the the strength of powering the economy um there's a lot of potential pent-up um spending hiring uh and inventory rebuilding that's waiting in the wings to drive the recovery going forward we don't need more fiscal stimulus we don't need any impetus we just need to see covid uh contained and so i very much agree with peter's view around a very rapid gdp growth creating a very large output positive output gap in the next couple years um now that brings us to inflation then so what's going on there well the fed would like you to believe that it's all temporary right that this is not a problem it's you know used cars and and computer chips and it'll all go away when the economy reopens um there's some truth to that there's no question that there's a lot of special factors driving inflation and as the economy reopens those supply constraints will ease however i think there are three reasons to take this a bit more seriously and would put me more in the worried camp of of peter in terms of inflation the first is that remember that in the last cycle again people take the wrong lessons from the last cycle in the last cycle the reason inflation didn't pick up when the economy got hot was because inflation expectations fell sharply at the end of the business expansion so for those of you who've taken intermediate macro which i assume is everyone on this call will remember the phillips curve has two components you've got the level of the phillips curve which is determined by inflation expectations and you have the slope that's that's determined by the sensitivity of inflation to unemployment or the output gap well what you had in the last cycle was the phillips curve shifting down even as unemployment went along the curve towards higher inflation so the two components of the phillips group canceled each other out late in the last business cycle well as peter noted and and dana had a chart in this as well um inflation expectations have already picked up we're already back to where we were before that fading of expectations so one of the areas where the inflation stories already showing up very early in this cycle is inflation expectations um and i don't think there's anything fluky about this right if the government says we're going to write a blank check on fiscal policy and if the fed tells you we're going to definitely overshoot on inflation i believe it you know if i'm i'm watching these massive spending policies these the very aggressive federal reserve policy um so i think that inflation expectations have picked up partly because they've convinced people they're going to succeed in exactly what they're telling us they want to do they want a red-hot labor market both the fiscal authorities and the fed and so i don't think this is a fluke that inflation expectations have uh picked up and that will in over time generate actual inflation um the the second reason for concern or for believing that there's a sustained rise in inflation is that if you look at the details including today's cpi report there are a lot of components that are not being driven by special factors that have picked up and the most important of them um as as dana pointed out is rent and owner equivalent rent important part of the price indexes we all look at that is already accelerating and as she pointed out is likely to continue to accelerate going forward so some some of this is already happening in the more sustained components it's not just used car prices going up uh and then the final point i would make is that um there's a lot of talk about the inflation being temporary now um and that next year we go back to normal i would put it the other way around i would say that next year we're gonna have a brief period where inflation fades a bit because these these hot sectors like used car prices come down but we're going to very quickly move into the later stage of the business cycle where you have more permanent shortages we have a very low unemployment rate we've got very little spare capacity totally unrelated to covet and all the stuff going on now so you'll go from these temporary shorter situations to more of what you normally get late in the cycle when there's a big shortage in the economy so i think the temporary part of this inflation story is what's going to happen in the beginning of next year inflation comes down a bit uh whereas the permanent story here is a gradual upward trend in inflation once you strip out all the special factors i don't think i wanted to talk so i i certainly agree that the the risk is that inflation gets too hot uh here given how hot the economy is going to remain um final thing i wanted to say is why is it i think that this comes up with clients all the time why are they doing this why is it that suddenly both the fed and fiscal authorities are like throwing away the rule book and hitting the accelerator full force why do we have fiscal policy three times the last business cycle and bigger than any other country in the world as a share of gdp why do we have such a big stimulus and and why do we have the fed rewriting the rule book why is the fed announced that they not only want to hit their target they want to overshoot their target they want to overshoot full employment and they want to have a red-hot labor market that helps uh disadvantaged workers right why is it that both of them have decided the same time to do this i think a lot of it comes back to what their what what part of history they're learning their lesson from and what they're getting their lesson from is the last business cycle this isn't like the last business cycle this doesn't we don't have a crippled housing and banking system we don't have a fiscal policy that suddenly stops before the economy's recovered we've instead we've got massive fiscal policy we don't have a fed that's trying to preempt inflation so they're trying to change their policy before inflation picks up rather than after it picks up so we're in a and we don't have the crippled we've got great household worth as as um as peter pointed out we've got a great banking system well at least my bank we've got a great banking system and we've got um you know a great housing market so none of the stuff that was the headwinds of the last business cycle exists in this business cycle so i think that it's just the wrong uh time frame and then the final thing i would say on this is on the fiscal front there's an even more dramatic story at play here and that is that americans and politicians in particular have learned to ignore deficits um you know if in and so it why is that well part of it's because we economists have cried wolf too many times about how there's going to be a big crisis because we've got these big debts and it just never seems to happen part of it's because both parties have developed intellectual cover for running big deficits so if i'm a republican i can look at kind of steroid steroid supply-side economics on steroids and argue oh don't worry about tax cuts they're going to pay for themselves we're going to have a ripping economy and we don't have to worry that cutting taxes raises fisk deficits well we saw what happened with the trump tax cut it absolutely was wrong but that kind of mythology around supercharged supply-side economics continues to be a nice intellectual cover for cutting taxes and not imposing any budget discipline and then on the on the uh the democrats not to be outdone you've got theory he's kind of like a on steroids keynesian theories like modern monetary theory that says don't worry about deficits you can spend whatever you want and if inflation picks up eventually then maybe you should be a little more cautious so the two parties have the intellectual cover to pursue their two two different versions of deficit financed uh fiscal policy um and then in addition the partisanship in washington is putting an additional pressure on the byte administration to get everything done as fast as possible the reason why they keep trotting out one fiscal bill after another is they know the midterms are coming they know that the um the incumbent party tends to lose in the midterms either lose the house or the senate where they have almost virtually it's virtually a tie in both houses of congress so the risk is quite high of them losing control of one of the houses and they know that if they lose control of one of the houses their whole agenda is dead because washington will go into full-blown gridlock so there's an additional element of pressure to get things done well before the midterms and really the only constraint in the democratic party right now is the moderates like joe manchin who are saying i don't want to go in for the three and a half trillion but i'm happy to do big uh big stimulus plans so you've got both uh the fed and fiscal authorities simultaneously adopting unusually aggressive policy and our gauge of this is that the on both counts the u.s is the most devish policy uh uh combination in the world we are the most elvis central bank and the most devish um fiscal policy um so i'm going to stop there um and turn things back to venky and i guess we can get some q a going wonderful um well i want to start off by thanking all three of you for a you know extremely very illuminating very interesting kind of overview and this thing uh i i recognized or i realized uh there were lots of overlapping themes so i'm going to start my q a uh partly from where you know ethan's kind of overview ended which is on fiscal policy so i wanted to get your thoughts uh on all three of you your thoughts on the recent fiscal initiatives and you know there are multiple parts to that one of them is this infrastructure bill and then there is the other part which involves spending on a whole range of new initiatives by which is the thing that's being which is the three and a half trillion uh package that ethan alluded to so i wanted to kind of ask you what your thoughts on those were both in terms of um what are they what are the somewhat longer term implications are these things going to actually unleash or unlock some hidden productivity potential in the u.s economy and then you know kind of tie it back to our theme of the day inflation and how you know these things are going to kind of feed into uh inflationary expectations and through inflation and so maybe we can go back in the same order we came so ethan peter and dana if you've been just you know i i'd let you hand off to each other as you go along um so go ahead and i will okay um so i think we need to think about different aspects of what we're seeing in fiscal policy you know during the height of the pandemic you absolutely need massive fiscal stimulus probably not quite as much as we got because so much of it ended up in people's bank accounts but you absolutely needed it and so that is you know appropriate fiscal policy then as you go into the new year and the economy is already red-hot you're now throwing more stimulus into the economy um i didn't understand the 1.9 trillion dollar package i mean why do we want to send out more stimulus checks to people when their bank accounts are already packed with uh with funds and so the fiscal policy instead of becoming very targeted towards the remaining pain points in the economy has continued to roll out at record levels now as we go forward i think again you have to think about what's needed and what isn't so you the uh the the conventional infrastructure and um in to some degree the climate change efforts to me seem like they're a very practical approach to something that really needs to get done i mean the infrastructure the us is terrible as folks at nyu know if they've commuted in and out of the city ever uh just go down to the subway any time and you'll find out um the um and so we need infrastructure and so you can argue that there's some productivity enhancements from that even better it'd be nice if we actually were funding it with a gas tax or some kind of revenue increase rather than with deficits so there's some value in that on the next package i think what happens is the moderate democrats water the whole thing down so you won't get three and a half trillion you'll get one and a half trillion maybe you're not going to get all of the tax hikes that have been proposed by the house i don't see joe manchin and the other moderates agreeing to that so what you're going to get is some kind of corporate increase some kind of increase in taxes and upper income people and a capital gains but everything gets watered down but it still leaves you with this package that's going to be more deficit than tax financed and therefore adds a little extra layer of overheating to an economy that's probably already overheating uh next year so that's my my view and yeah yeah well i'll say that i think larry summers had it right when he observed that it's unfortunate that we're putting all this resources into padding savings savings accounts rather than putting it investing it where it can be more productive i think there is a pretty strong bipartisan agreement that as as ethan notes we need more investment in infrastructure broadly defined and that probably would uh add noticeably to productivity growth down the road i mean on as you go beyond the infrastructure spending and into a number of initiatives democratic party would like i mean i happen to think that there's quite a bit there that would be beneficial in terms of uh raising uh productivity potentially on in terms of education in terms of uh other support for households etc um but i you know i agree that uh this is a this is going to be very tough politically uh the the moderate uh the moderates are are not going to go along with the high spending um my sense is probably we end up with something that maybe adds a half percentage point to gdp um spread over a year or two uh with with some tax offset to the to the spending increase that we get there but i am optimistic we'll get enough on the infrastructure side to add add to potential growth um we did an analysis of the package when it first was launched or floated out to the to the public earlier this year and so we kind of scored everything together uh the raw infrastructure as well as all the human infrastructure and um you know i mean you could right now they're breaking these pieces apart but the point is that you know the raw spending i agree with ethan that's going to provide like the rollout for that's going to be more immediate so that's going to provide a boost to to gdp growth and a little bit more inflation in the very short run when we looked at the components of the infrastructure plan at least you know back in april whenever i think that's when it was released march april a lot of it was um based upon fixing what's broken and for those of us who like to talk about multipliers um you know the multipliers for fixing what's broken tend to be smaller than for just building new stuff so where you know in terms of what we've incorporated into our forecast we have incorporated some kind of infrastructure bill roughly a trillion dollars but it doesn't provide much of a boost in the short run because it has very long run rates for the output um and then it probably doesn't provide much of a boost in over the longer run in terms of total factor productivity because you're just kind of fixing what's broken you're not adding any new are much in the way of any new um infrastructure so i mean it's you know we're non-political we don't make any political statements but just from you know just the raw analysis that's just kind of where we see uh things headed you know if if any portions of these two bills get passed so not so in the short run a bit of a boost from the raw spending um not much in the infrastructure over time uh thank you so much so another question which i think is related to a number of questions both in the q and a box and some that i received earlier about inflation so i want to kind of come back to that theme and let me try and maybe articulate you know or at least summarize those different points of view in the following way so part of what's complicating the picture right now is the is our inability and perhaps to some extent the fed's inability to distinguish between or disentangle these transitory disturbances from these more sustained inflationary pressures and as many as all of you mentioned to varying degrees over time hopefully that inference problem or that difficulty is mitigated as we see you know to the extent that there are sustained inflationary pressures we're going to see them in in sectors all over the place and hopefully that will kind of signal uh or make it clear that there are inflationary pressures what i was what i wanted to ask you was um do you see a significant risk that at that point the fed continues to kind of uh drink the kool-aid to use a colorful phrase and kind of ignore those signals and learn from the wrong period of history or do you actually see you know the fed kind of changing gears relatively quickly when you know when something like that comes along and again let's go dana peter ethan in that order sure it seems like peter's always in the middle oh yeah maybe i should mix that up a little bit next time um you know i i've watched the fed for not as long as as some of the other folks on the call but for a while i'm you know we're dealing with some very brilliant people and i mean i agree with ethan that the fed is has kind of shifted its focus more in terms of you know inequality and addressing those issues that you know really manifested themselves over the last decade and a half um and certainly were social political issues over the last couple of years but i think that the the fed you know again we're dealing with folks who also are historians and would turn on a dime if they needed to again i had all those different circuit breakers and i i truly believe that if a number of those circuit breakers are breached um you know inflation expectations rising uh too quickly by too much um market expectations for action increase that the fed's going to act you know and certainly the fed we've noticed since the great financial crisis that the fed is kind of you know led by the nose a little bit by financial markets and so i think if you have a combination of not only consumers but also financial markets and economists expecting action that the fed will probably comply um and that it's not going to just sit back and allow a crisis to happen or maybe i'm drunk in the kool-aid i don't know so i'll hold the fed's feet to the fire here a little bit uh the average rate of inflation over the last three to five years is now above two percent core pce um there's no longer any reason for them to want to overshoot in order to get inflation expectations back up because they've been too low okay when they set their forecast for inflation in december at uh 1.8 percent for core pce they weren't anticipating the kind of uh events we've been through here that have changed the picture okay so if if inflation falls the way they anticipate if it comes back down to two percent a year from now okay and stays there and maybe goes a little little below um if it's it's in that vicinity then they can continue on their current uh advertised path of holding off raising rates until sometime in 2023 but if for the various reasons that dane has put so put forth and ethan we get inflation remaining higher for longer given their i'm going to say okay they have this new regime let's stick to it uh they're going to have to they're going to have to act more more rapidly to get out of out of this out of getting into a bigger problem down the road yeah i i um i agree that there's a risk the fed waits too long and then has to hit the brakes very hard um and i think that the here's the here's the challenge for the fed right we inflation models stink they don't work very well um and they've adopted a policy where they're they're saying we're only going to react when we see the whites of the eyes of inflation it has to be there we have to be sure it's sustained and so there's a high risk that it hits them and they're late and in fact if you one of the things that i find striking in the fed commentary is a lot has changed this year so as we came into the new year some things happened that should have been had a big impact on fed thinking one of them was the sweep by democrats and then the fact that democrats took full advantage of that sweep to push through much bigger than expected fiscal packages and yet the fed's commentary didn't seem to change at all they just kind of said that's a great that they're doing that the fed's commentary didn't change when vaccines came rolling out twice as fast as anyone's expected their their their rhetoric has been pretty stable in the face of some pretty high inflation numbers it feels like they're gonna err on the side of going too late um and we know and this is where old folks like me and peter get nervous we know that once inflation gets going it isn't that easy to get it back under control you know that was the whole story of the 1970s is that every time the fed thought about trying to control inflation they found out it's really costly and then they backed off and let it keep going i think when you if for folks on the on the watching this this the show here um when you look at the fed remember particularly powell remember the way he's interpreting the economy is from a risk management point of view he's what he's saying is i want to be absolutely certain we hit our targets and overshoot our targets and therefore he's very focused on the risk and the left tail the distribution that we don't get a full recovery that we don't get inflation picking up on a sustained basis he's putting a lot of weight on that on the other hand if when you listen to a economist like the three of us they're looking at the center of the distribution as their baseline and looking putting equal weight on the two ends of the tails of the distribution i think that this kind of glass half empty never acknowledge inflation is really picking up but never acknowledge just how strong the economy is i think that's based on his focus on avoiding that left tail um at all costs and by the way when you look at the commentary from the rest of the fed so if you look at for example the sept forecast the fed publishes after their meeting that is a baseline forecast it's not a risk kind of adjusted thing that the way powell describes the economy and that's one of the reasons why i think that the sep feels more hawkish than him it's not that he disagrees with the what the forecasts of the rest of the committee are it's that they're giving their central tendency uh and he's thinking of this from a risk management point of view of avoiding it all cost a replay of the last 20 years where they couldn't get hit their inflation target that that's my view right that was very illuminating um so one other maybe more kind of you know whatever the the low level or an immediate tactical question on this and then i want to shift to other topics um on the labor market i know all of you in your uh in your summaries kind of touched upon different aspects of the labor market um one thing i want to kind of focus on is the so-called infamous worker shortage and the wage pressures that are coming as a result of that so they were you know obviously a lot of ink has been spilled you know kind of coming up with explanations for that ranging from oh it's the nervousness about the virus that's keeping people away it is the you know unusually generous unemployment benefits that are keeping people away and all of those things have contributed to a shortage and therefore higher uh pressures on on wages and we saw that in the most recent report where even though the it was weaker there were signs of upward wage pressures do you guys anticipate um that kind of that dynamic changing you know given the recent experience exploration of the unemployment benefits and perhaps some kind of moderation of the of the of the virus in the coming months in other words is there going to be a an anti-inflationary force coming from people coming back or people being either more willing or being forced to work because they no longer have an unemployment check to count on so this time to kind of break my order i'll start with peter ethan and then dana um well the new york fed does uh does an interesting survey consumers in which they ask a question about reservation wages at what wage would you willing to be willing to go back to work or take a job and for much of last year into this year those reservation wages were rising particularly for lower income folks uh in the last uh between the last two surveys since since early spring they've been going the other way uh reservation wages have been falling uh people are willing to say that more willing come back to work and probably i mean yes this was somewhat pre the worst news on delta but it was also an anticipation of the ending of the unemployment benefits so i think all of the above have been factors just one more thing our u.s econ team headed by matt lizzetti has done some very nice work looking across county level data and the finding is that things line up most closely i mean the labor market conditions uh relative to covid relative to unemployment benefits etc it appears that the the delta is the most important factor i mean the the the holding people back uh and and maybe when you consider broadly they expect the extent to which that has impacts on not just willingness to go back to work but also ability given uh ability availability of daycare et cetera uh a factor yeah i i don't buy the republican talking points if you get rid of unemployment insurance and everyone goes back to work i'll say that much um you know i i think that the um the challenge here is it's just going to take a while for things to come back um you know as i said you know if you if the job openings data suggests that for six i think it was actually like 11 out of the last 12 months uh job openings have gone up or something um and you're going to have to work you know before you you're going to have to get those workers all back at some point i do think that it's very sensitive to covet um i as i said earlier i think if you look at the divided population of people who went back early in the crisis and ones who've been staying on the sidelines they're they're different kinds of people so i think this pause we're seeing right now is just you know people are risk averse just saying no not going to do it now it's going to take a few months though to get them to really get moving on this and to start working through that inventory of unfilled jobs but i do think that we may get another soft september but probably by october you know the the labor market's starting to loosen up again and you might end up getting some pretty strong payroll numbers at that point um given all the the unfilled jobs so um i think it's just going to take a little while to get things going and it's going to take quite a while to reverse that huge excess supply so we're going to have a lot of potential job growth for a while here as those guy people get hired um you know just looking at the last jobs report um or at least the last few jobs reports most of the delta from one uh month to the next was being driven by in-person services and so there were zero jobs in leisure and hospitality um added in august and that i think is fully a function of delta right people pulled back said we're not going on vacation we're not going out to restaurants you know in some states you couldn't um and so there was no job growth there but i think that there are three other factors in addition to the ones that peter and ethan mentioned in terms of of why you have this you know labor shortage um a big one is the fact that children are not fully back at school and so that's affecting labor market activity especially for mothers because in a lot of households the responsibility of you know homeschooling is falling uh to mothers um so a lot of women are still not back in the labor market because their kids are not physically at school um i think that there's another reason why i think we're not going to recoup all the jobs um well not another but a reason why we're still probably going to see a gap is that tons of people have retired you know either due to either they were close to retirement they feared getting infected or they you know don't really want to work you know in the office anymore or you know they they benefited from the stimulus checks all sorts of reasons for why people retired and they're not coming back right and that's going to run up against severe labor shortages that we're going to find in the next few years that that peter alluded to particularly because of demographic issues we're going to have more people retiring than becoming uh aging into the range age range from work and then another thing this is really interesting that the harvard business review published about a week ago is that there are tons of people who are applying for these open jobs but they're not getting them because of technology where you essentially have these ai algorithms that are not picking up on these people because either their skills don't match that you know it's hard to map them because you're a veteran right or you know you had a gap in employment do the pandemic you put that on your resume the algorithm boots you out um and then another issue is that i think businesses um are having difficulty finding the right kind of worker and so what we've been noticing is that businesses have been changing their desire for skills you know kind of lowering the threshold with the intent of training these people once they come in um and so i think you know these are additional reasons for why we're seeing these bottlenecks in terms of hiring and this mismatch between the number of jobs that are just available and people to fill those positions so thank you i have some some practical advice to your audience here especially the students by the way yeah well one of the things i've discovered through my son and his job search is there's an arms war going on in job searching because you got all this stuff online and so all these companies have these programs that sort through resumes and you have to be your resume has to fit check all the boxes for it to be picked up even if you're a great person for the job if the machine doesn't recognize you they won't give you an interview well the counter play to that is to employ one of these companies that mimics those search machines and do that to your own resume and so and it works now the problem of course this is all inefficient from a society basis because everyone's competing to see who can gain the other guy better but anyways i thought that if you get nothing else out of this uh presentation some advice about how to get your resume picked up is uh that's right i think we should probably add a class on how to game the system this is like this is the radar blocker of the day i think um so one other maybe okay so i want to kind of switch gears maybe talk a little bit about other topics and one of the things i wanted to talk about um and this is something uh it piggybacks on something ethan mentioned um i know we're all kind of focused on on covid and and and the trajectory of the virus and the rest of the greek alphabet as it comes rolling along uh what other risks do you guys see or maybe maybe have fallen by the wayside in that discussion you know financial stability you know is there deleveraging uh risks in some parts of the economy uh there's always the you know so i i just wanted to get your thoughts on you know something you mentioned even earlier that you know what this what is lurking in the left tail uh of the distribution that we might we should probably you know have at the back of our minds even if it's not the most important factor that's going to drive uh near-term outcomes so again why did i start with ethan peter and then data yeah i mean i would i would mention two very briefly um one is um i do think there's financial stability risks because you know if you let's say the fed is making a mistake here and which i i don't know maybe they are maybe they're not we're going to find out and they're waiting too long to hike and then it all comes back loaded um well the markets are getting kind of lulled to sleep a bit with this no rate hikes anywhere in sight environment and so it's it's the kind of environment that can create bubbles and asset markets and then when the fed takes away the punch bowl abruptly you could end up with a financial accident it's one of the reasons why the fed normally taps on the brakes a little bit early so that's one risk the other one is u.s china relations right we don't really know exactly what the new equilibrium is here we know that g is uh consolidating his power in china he wants china recognized as a superpower he um and he's a bit of a bull in the china shop over there in asia i don't know bowling a non-china shop i guess um and we don't and it's it's going to be very awkward to reach a dayton between the western democracies with open markets and a state kind of driven economy that's stopped moving towards the free market and started moving back towards state-sponsored activities so there's a lot of risks in that particularly of a tech war coming back in a big way so ethan has hit my uh my my big three i mean the codeword-related variants um certainly inflation and fed as we've been talking about uh and and geopolitical with china at the head i suppose very near term uh looking at the politics in washington i'm getting a little worried about uh things like debt ceiling uh we we could see some fireworks that could be disruptive i mean it wasn't that long ago we had a downgrading of us treasury debt and and uh i think i guess it was ethan's talk about the general acceptance here market equanimity about debt and deficits but certainly that that could come to the fore if if indeed uh mitch mcconnell stands by his words that he's not going to allow the debt ceiling to rise if there's any spending by democrats sure each of the things that ethan and peter mentioned are on my laundry list in fact in my deck i have like a whole list i didn't bore anybody with it um but i would say that um you know certainly de-globalization and protectionism were kind of tied together um as big issues for for for us in terms of things that keep me up at night um you know certainly and this is also tied to the geopolitical element in terms of the u.s china relationship where you have economies europe china the us all engaging in some form and the u.s on the cusp of industrial policies that kind of roll back you know the globalization of trade and the globalization in terms of of human capital and free movement of people and even the free movement of capital itself where you have bans on where you can invest and also demands on where you can place your supply chains and source goods um and travel well not travel bans but you know restrictions on visas in terms of who can come in and out um and all these things have implications for not only gdp growth in terms of reducing global trade but also reducing domestic demand and creating inflationary pressures and it's all coming at a really bad time and certainly the pandemic has exacerbated these existing feelings that were already that were pre-existent before the pandemic and just kind of made these issues even more uh important to focus on so i i would say that you know certainly looking at supply chains you know industrial policies um the tech war that that ethan mentioned um these are the things that that all contribute to deglobalization and you know as an economist we view that as a negative for growth and certainly inflationary so i i think that ties into what is perhaps my last substantive question before i give you a few minutes about this thing has to do with you know is that you know we've spent a lot of time talking about the us both monetary fiscal policy and other factors uh but you know this uh the covet pandemic in particular has had you know somewhat similar effects in on public debt and you know and policy all over the world especially and to some extent even even more dramatically in some parts of the emerging world so one thing i wanted to ask you is to put on your global economist hats back on and see is there risk brewing in you know in emerging markets or in other parts of the world which you know which we should be kind of on uh which should be on our radars now i don't know so i'm going to start with dana and then peter sure i definitely think that their financial stability risks um a number of emerging markets have already started raising interest rates because they're concerned about their credibility in terms of fighting inflation and maintaining stable currency markets but they also run their risk of cutting their nascent recovery short um and still finding themselves in a situation where they're heavily indebted because the number of emerging markets took on a lot a ton of debt at least initially during the pandemic and they also didn't have vaccines so they they said well where do we invest right and when you look at the imf's forecast a number very few economies are actually going to be reducing the amount of debt that they will be that that they will have on their sovereign balance sheets most economies are going to see an increase um over the next five years so i'm very concerned about financial stability risks in terms of emerging markets um and then also in terms of you know what uh the fed does in terms of the fed's policies having this ripple effect throughout global financial markets and feeding into you know currency movements and flows of capital for these emerging markets i i was going to pick up on exactly that point i mean i think the sensitivity to uh i mean we've been focusing on the inflation risk domestically in the u.s but uh the sensitivity of emerging markets especially and and a number of advanced economies um in europe and elsewhere uh to to a fed that suddenly had to turn aggressive um that that would be painful yeah the only thing i would add is um the the coveted crisis is really awful for the weakest countries in the world i mean they're not getting vaccines they don't have fiscal space to to to offset the shock their economies it's a real tragedy happening quietly these are countries that we generally don't cover because they're not important financial markets um but beyond going beyond kind of the the traditional emerging markets that we're talking about here that could have a you know capital flight problems and so on there's just a it's just bad you know to see and see what's going on um with the unequal distribution of vaccines and so on for countries that need it desperately so what i want to conclude with and we'll just take another minute of everybody's time i know we're already at the scheduled time i just wanted to pick all your brains for a brief you know like advice to our students who are interested in careers and finance and or economics all of you have a perspective that i think they would be invaluable for them uh at this stage in their careers so whatever you know whatever advice ethan already gave us they should hire you know resume what i don't know what their service is called but or something but any any thoughts uh any brief thoughts on what you would like to communicate to them i think we'll end on that though um well having spent uh haven't had two careers now one one at the fed uh for 26 years and and uh another at deutsche bank for almost as long hard to say they're both both wonderful i mean uh public service uh service at the federal reserve and and as dana observed a lot of brilliant people there so um if you're all inclined in that direction i certainly would not uh discourage it uh and it's a good good place to as a takeoff for the for the private sector um i guess that that that would be the one other quick thought but that that's the main one i think uh i wouldn't wouldn't uh want to sell short uh the public sector here by any search yes i'd have to agree with peter um certainly you know the brief time that i spent at the fed as an intern it definitely gave me a halo effect um that lasted throughout you know to this point in my career uh but i would encourage everyone to just kind of explore the public sector the private sector and academia it's great to do all of them and also policy all four um so wherever you start your career um you know think about kind of dipping your toes in all those different areas so that you can have a very broad and you know well-versed portfolio yeah i'll give the advice i gave uh right before the financial crisis uh i was speaking at a college about career stuff and the economy and guy who's going to come to lehman brothers to work and he asked me where of course is right before my company went under right he asked me uh you know where should i go in the firm i said pick the safest apartment you can find and stay away from mortgages i think that this the simple advice is the one that everyone gives is which is networking asking questions find something you really like you know they do love and so you you get up for and it's more than just making money if you're on the way to graduate school taking a couple years ahead of that uh to try it out is really really very valuable wonderful um so i want to i want to start out by thanking our panelists this was fantastic you know we covered a lot of ground and you guys made it very interesting engaging and accessible for everyone uh so i really want to express uh the gratitude of all of us here um doing that i also want to thank all the participants for all your q a i'm sorry we didn't get to all of them i'll try and save a transcript and send it off to the to the panelists and they can process it as they uh as they but i want to thank you all for staying and participating uh two quick things one i want to shout out to jonathan who has kind of helped organize this he's been on the call and he's kind of made these things happen on the back uh at the back end and he's been remarkable so this wouldn't have happened without him and finally the center has another event next friday where john taylor is going to talk about monetary policy after the pandemic so john already thinks that the pandemic is behind us perhaps but you know so i encourage all of you to attend uh and you can find the details on the center website uh i try to join you to attend and i hope to see all of you there with that i'm going to kind of end this session and again thank you all for for a fantastic session thank you thank you [Music]


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