Transcripts For CSPAN Monetary Policy And The Economy 201709

[no audio] [applause] good evening. Excited to be here with you all thank you for coming. And thank you for hosting this here in your facility. We have a set of questions that we have set up for rob and we will open up the floor and we will ask some questions. From a timing standpoint. Economically we just head jackson hole and Second Quarter secondquarter gdp numbers working a little bit better. From a human and social perspective its an unfortunate time our sympathies and prayers go with the folks in houston. Im sure your comment about some of that later on. Looks get straight get straight into it. We will talk about the u. S. Economy and then we will go to Global Economy and the Monetary Policy lets start off with u. S. Economy. Whats outlook for the next three have in five years . Our own forecast is that for the year 2017 the u. S. Economy should grow approximately two and a quarter not great by historical standards but certainly sufficient in our view to further take slack out of the labor market, slack out of the market and likely drive down the Unemployment Rate and other measures. And we can talk about a number of reasons why gdp growth is more sluggish now than it was 10 years ago, 15 years ago, the number one reason is aging demographics. The biggest headwind for Economic Growth in this country is the fact that our population is aging and workers are aging out of the workforce. A lot has been made to the fact the Labor Participation rate was about 66 today at 63 63 . Our research suggest the bulk of that decline is demographic. It demographic. It gets worse over the next 10 years. We think the Participation Rate is getting below 61 . There are number of other big secular trends, to me it is the most significant and explains why gdp growth is sluggish. There are number of things we can do to deal with this a demographic issue and the things that come to mind are getting more women into the workforce , although that is plateaued. Mproving skills training close the skills gap, there are more skilled job openings. Little skills training and other skills training is key. Yes, immigration is a key part of this. Immigration made up over half the workforce over the last 20 years. The reality is two things drive gdp. Growth in the workforce and growth and productivity. We will talk more about productivity issue but if we dont grow the workforce its going to be very hard to grow gdp. We spent a lot of time doing work on that and talking about the fact that it is controversial, immigration is and distinctive competence of the United States. It is one of the reasons we have been able to grow for many decades. My grandparents were not born here. It may be true for many of you here today. That is the outlook for the u. S. Economy. I think we are in a 2 growth economy i would love to tell you over the next five years its going to go like this, but the demographic trends are going to intensify. We can grow higher, but potential gdp is likely to go lower, not higher. The demographic issue, you often referred to secular trends. We demographic it to gdp, talk about globalization, Technology Enabled destruction disruption. Can you talk about that a little bit . He just said, i talk about aging demographics, that is a big driver of gdp. Gdp isond big driver of globalization. Globalization has taken a lot of different forms over my lifetime. They used to be a lot of shore,ies got moved off lost jobs, etc. That is very true. Today, globalization, the character of it has changed dramatically. I will give you an example. Hadtrade deficit that we with mexico there is a lot of discussion about it, it is an intermediate trade deficit. Our Researchers Show about 70 of goods we import and the United States from mexico are intermediate goods. What is that mean . They are going back and forth across the border. Ande are trade partnerships logistics between manufacturing and other companies here in mexico to have allowed those u. S. Companies to remain more competitive and pill jobs in the United States. In contrast, most of our deficit with china is a final goods deficit. Very different. What globalization means to day you sit think it meant the shoe industry getting moved offshore. Today, more likely it means the integrated supply change and logistics that allow countries to keep jobs, inc. He them from going to asia. It isa big driver, and misunderstood. It gets confused sometimes with Technology Enabled the show disruption, which is a much more powerful driver today. Likely explains many job losses in industries today than does globalization. We have attributed many drop job losses here, it must be trade or immigration. More likely, job losses today have nothing to do with either. They have much more to do with the fact that amazon versus retail, and every other industry disruptive competitors, usually Technology Enabled, it able to drive down costs, improve option for computers and tend to have the effect of limiting Pricing Power businesses today. Most likely, if you have a High School Education or less, you are much more likely to be vulnerable to being squeezed out of your job. Because skills training is not enough in this country. We are not set up for. The next job you make is a much lower paying job. If you have a college education, you are much more able to deal with technology and disruption. We are confusing the two. Why does it matter . If we attribute job losses to coming becauseor of technology, our policy will also be misguided. I actually think we are at the stage in our history ironically , where all the pain and disruption due to globalization, we are at the point were globalization is in fact, an opportunity for greater growth in this country. To integrated supply Chain Logistics or growing the workforce through immigration that, in fact, the thing we attribute many of these losses to requires more skills training and other policy prescriptions. Its very critical when it comes a trade, immigration, skills training Infrastructure Spending that we get this diagnosis right , because if we get it wrong where its confused we will make decisions that will actually cause us to grow slower. More slowly. Right now the last comment a lot of small towns and and texas has a lot of them they are struggling because they are losing population. One of the reason is cultural, the kids do not want to stay in those towns and want to go to houston, dallas, new york, l. A. People in issue is this country because of aging population. With each warring other to attack people. Texas is winning the war. We are. We are attracting people. Losing states are losing people and thats what ruralthe city versus issue worse. Diagnosis get this right, not just for Monetary Policy but to inform policymakers so we make good decisions from policy point of view generally. My concern right now is we may be confusing the diagnosis of what is going on. Lets talk about the debt situation. There is debate about whether we should raise the debt ceiling on arts, whether we do or we dont the fact of the matter is , we have a lot of debt. And especially when you factor in the unfunded future entitlements is at 46 trillion. What changes are needed here . I call this the end of the debt super cycle. What do i mean by that . Whether we are conscious of it or not to most of my lifetime and im getting a lot older we older, through most of my lifetime, we in this country when we have a downturn or economic weakness we basically increase our debt to gdp often to stimulate more growth. We didnt call it increasing debt, we call it spending, but the net effect of it was that we leveraged up to stimulate more growth. As derek just said, we are at the end of the road here. Public debt, public government, about 70 of gdp and entitlements that we said 46 trillion. It is not a surprise with this polarization in dc and more partisan and all that, but there is one of the thing going on. It is not a surprise we have not seen fiscal policy in about eight years. It is because we are highly leveraged. People in d. C. Know it, the capacity and you are seeing it play out in all of these debates with health care, tax reform and all that. Why is it so hard . One of these issues as we are very highly leveraged and were very aware of it, we dont have a lot of room to increase gdp debt. That is why it has been Monetary Policy, not just in the United States, but most of the western world. It has been mainly Monetary Policy. Banker, and you would think im fond of the Monetary Policy. Policy is Interest Rates and use of our Balance Sheet. It is not Structural Reforms. What is the example of Structural Reforms . Skills training, immigration , and Infrastructure Spending would be in the mix. We are at this stage of our development where Monetary Policy alone will not do the trick, but will highly leveraged the challenge. Had you make other fiscal and Structural Reforms so that we can grow greater because Monetary Policy alone has a role to play. It alone cannot deal with these big secular drivers we just talked about. I think it is good for a central banker to say that. We have an Important Role to play but we need broader policy. Eight year after the crisis it is time for broader Economic Policy if we are going to grow faster. Wise is so critical to the debt that we grow faster . You say what is bad about 2 2 . It would not be a problem if it were not so highly leverage. Nominal gdp is what Services Debt. What Services Debt of a company . Pretax income. You needed to service debt. Gdp is our income. If you grow slowly we will get more leverage, particularly as we age. I think we have to find ways to grow faster we have to restructure the debt or likely both. That is the big challenge we face. Derek the good news is mr. Kaplan just trying to cheer you up. [applause] households are in great shape. The good news is, 2007 household sector was highly leveraged. And debt togdp income was historically high. We did not notice it that much because that to asset values looked totally reasonable. But asset values for prices were very high. Weh the last eight years have gone through a painful eight or nine years red has slowly deleverage. The incomes of grown and they have an increased debt. Now the household sector is in decent shape. From a balance point Balance Sheet point of view. That is why i am pretty confident, while 2 and two at a quarter percent might not be what we hoped for, i am pretty confident that there is a good underpinning to our gdp growth. The trick is now, that is great, how do we grow faster . Derek what about the stock market . As a banker you probably cannot speculate on the stock market. Mr. Kaplan it is looking good. Derek are we headed higher, or are we facing an impending crash . Mr. Kaplan we were joking around before. In my previous career i was in the stock market. In this job, not so much. [laughter] mr. Kaplan i make a few observations. It occurs to me, i will say some antiseptics things here. The difference of whats happened in the markets, we went from rates are low but they will probably go up, to rates are low, and i wonder when they will go up, to rates are low and they are going to state below. It is based on expectation of rates. The reality is, why are rates so low . It was at 209 the last i looked. Driver two main drivers of the 10 year treasury. Ne is prospective gdp growth expectations of future gdp growth is the primary driver of the 10 year. The secondary driver, which is global liquidity, a lot of global liquidity has been created by central banks, including the fed. That is why we should improve our Balance Sheets as improve reducing our Balance Sheet. I think the main reason is prospective future growth being weak. The market has gotten ahead and it will stay lower. As a central banker, i do not worry as much as people might think about elevated valuations. Historically corrections alone, they dont mean create a Systemic Risk. What does mean create a Systemic Risk is the elevated evaluation at elevated level of debt. Healthy real estate values, maybe we have way too much leverage associated to finance it. Had veryhy the fed has tough we have had very tough macro credential policies, regulatory policies. Over the last fee years, they have been tamping down commercial real estate exposure of banks as a percentage of the total cap. I personally think there needs to be regularly really for midsize banks. I think for big banks, we have been very well served by very tough macro credential policies. That explains why the market evaluations are more elevated trade that alone you could argue is too high and low. Me isrt that worries excess debt building up alongside it. Right now we took a snapshot. I think it is still manageable, but i think it is probably not the time to be weakening macro prudential policies, especially for big banks. We should be giving regulatory relief to Small Midsize banks. High valuation and good macro potential policies probably go together. If we learned everything anything from 20072008, we have health evaluations, low rates and regulatory loose policies and we paid the big price for it. Derek monitoring the yield curve is critical. I watch the yield curve for the last many years. I look at the yield curve i look at it for a few reasons. Aredo we know when we accommodative or restrictive . There is a theoretical concept always in my mind when i think about Interest Rates. That is called the neutral rate. You will not find it on your bloomberg screen. It is a theoretical rate, it is the rate that we are neither accommodative or restrictive. Ok . The curve is instructive. There are a lot of things we at. The 10 year treasury tells you something about what the neutral rate might be. My own view is the following, the neutral rate today, the much closerrate is to two and a half percent than it is to 3 . If you asked me 10 years ago i would say it is closer to 4 or 5 . Why is it so much lower . Prospective growth driven heavily by aging demographics and slow workforce. The fed at 100 125, which is where we are is accommodative. I dont think it is as accommodative as people think. I watch the yield curve to learn what the market is saying about perspective growth and prospective rates. That reinforces that the neutral feds fund rate, where we settle out ultimately over the next x is closer to two and a quarter, two and a half because of sluggish prospective future growth. That is what the yield curve is telling us. Derek lets move to the Global Economy. What are the three or four major risks you see in the Global Economy . Which countries or regions due to the monitor in the fed when you consider policy . Lets jump around the world really fast. Europe is doing better and going faster, but that is in the context of less than 2 gdp growth. Yes they are doing better, but they have a lot of the same high debt to gdp. Issues, theructural same issues we do. That is europe. Canada have their own issues. Mexico actually has very good demographics. Canada has aging demographics like us. Mexico has been through a lot over the nap last number of years with weakness and energy and then worry about our trading relationship. Their currencies have been all over the place. A lot of volatility and they brave their own fed funds rate multiple times to try to find inflation. Theyre the one country in the world that does have inflation and they are trying to get control of it. Then we go to asia. Asia is a source of growth for the world. A better demographics, better government and the gdp accepts. The biggest part of asia is china. In asia, iran up business for my firm in asia in the middle of my career. The character of china and its impact in the world has changed radically. It is dramatically bigger. The way it has grown, it will grown this year. It will grow this year six and a half percent gdp. I could have told you that six months ago and i could tell you six months from now. The reason is, the way they do that is a target gdp level then they use debt increasing their own debt to gdp. Either Infrastructure Spending or spending on state owned enterprises to fill the gap. They basically doubled that to gdp and china. Unlikely to be sustainable. Itn i look at Global Growth, is better, that is good news, except part of that being better is China Growing 6. 5, 6. 7 . Theetty confident that world will have to get used to China Growing more slowly. There will not be able to keep using increasing debt to gdp to simulate gdp growth. We have to get used to their gdp floating down. Ofy are now a big percentage Global Growth. The good news is, for lots of reasons, i think emerging markets are more stable. I think Global Growth picture looks better. Getpt we should just comfortable with the idea that part of that Global Growth is china. I think it is likely that chinas growth will need to drift lower because they will need to stop increasing debt to gdp to achieve it. Better Second Quarter<\/a> secondquarter gdp numbers working a little bit better. From a human and social perspective its an unfortunate time our sympathies and prayers go with the folks in houston. Im sure your comment about some of that later on. Looks get straight get straight into it. We will talk about the u. S. Economy and then we will go to Global Economy<\/a> and the Monetary Policy<\/a> lets start off with u. S. Economy. Whats outlook for the next three have in five years . Our own forecast is that for the year 2017 the u. S. Economy should grow approximately two and a quarter not great by historical standards but certainly sufficient in our view to further take slack out of the labor market, slack out of the market and likely drive down the Unemployment Rate<\/a> and other measures. And we can talk about a number of reasons why gdp growth is more sluggish now than it was 10 years ago, 15 years ago, the number one reason is aging demographics. The biggest headwind for Economic Growth<\/a> in this country is the fact that our population is aging and workers are aging out of the workforce. A lot has been made to the fact the Labor Participation<\/a> rate was about 66 today at 63 63 . Our research suggest the bulk of that decline is demographic. It demographic. It gets worse over the next 10 years. We think the Participation Rate<\/a> is getting below 61 . There are number of other big secular trends, to me it is the most significant and explains why gdp growth is sluggish. There are number of things we can do to deal with this a demographic issue and the things that come to mind are getting more women into the workforce , although that is plateaued. Mproving skills training close the skills gap, there are more skilled job openings. Little skills training and other skills training is key. Yes, immigration is a key part of this. Immigration made up over half the workforce over the last 20 years. The reality is two things drive gdp. Growth in the workforce and growth and productivity. We will talk more about productivity issue but if we dont grow the workforce its going to be very hard to grow gdp. We spent a lot of time doing work on that and talking about the fact that it is controversial, immigration is and distinctive competence of the United States<\/a>. It is one of the reasons we have been able to grow for many decades. My grandparents were not born here. It may be true for many of you here today. That is the outlook for the u. S. Economy. I think we are in a 2 growth economy i would love to tell you over the next five years its going to go like this, but the demographic trends are going to intensify. We can grow higher, but potential gdp is likely to go lower, not higher. The demographic issue, you often referred to secular trends. We demographic it to gdp, talk about globalization, Technology Enabled<\/a> destruction disruption. Can you talk about that a little bit . He just said, i talk about aging demographics, that is a big driver of gdp. Gdp isond big driver of globalization. Globalization has taken a lot of different forms over my lifetime. They used to be a lot of shore,ies got moved off lost jobs, etc. That is very true. Today, globalization, the character of it has changed dramatically. I will give you an example. Hadtrade deficit that we with mexico there is a lot of discussion about it, it is an intermediate trade deficit. Our Researchers Show<\/a> about 70 of goods we import and the United States<\/a> from mexico are intermediate goods. What is that mean . They are going back and forth across the border. Ande are trade partnerships logistics between manufacturing and other companies here in mexico to have allowed those u. S. Companies to remain more competitive and pill jobs in the United States<\/a>. In contrast, most of our deficit with china is a final goods deficit. Very different. What globalization means to day you sit think it meant the shoe industry getting moved offshore. Today, more likely it means the integrated supply change and logistics that allow countries to keep jobs, inc. He them from going to asia. It isa big driver, and misunderstood. It gets confused sometimes with Technology Enabled<\/a> the show disruption, which is a much more powerful driver today. Likely explains many job losses in industries today than does globalization. We have attributed many drop job losses here, it must be trade or immigration. More likely, job losses today have nothing to do with either. They have much more to do with the fact that amazon versus retail, and every other industry disruptive competitors, usually Technology Enabled<\/a>, it able to drive down costs, improve option for computers and tend to have the effect of limiting Pricing Power<\/a> businesses today. Most likely, if you have a High School Education<\/a> or less, you are much more likely to be vulnerable to being squeezed out of your job. Because skills training is not enough in this country. We are not set up for. The next job you make is a much lower paying job. If you have a college education, you are much more able to deal with technology and disruption. We are confusing the two. Why does it matter . If we attribute job losses to coming becauseor of technology, our policy will also be misguided. I actually think we are at the stage in our history ironically , where all the pain and disruption due to globalization, we are at the point were globalization is in fact, an opportunity for greater growth in this country. To integrated supply Chain Logistics<\/a> or growing the workforce through immigration that, in fact, the thing we attribute many of these losses to requires more skills training and other policy prescriptions. Its very critical when it comes a trade, immigration, skills training Infrastructure Spending<\/a> that we get this diagnosis right , because if we get it wrong where its confused we will make decisions that will actually cause us to grow slower. More slowly. Right now the last comment a lot of small towns and and texas has a lot of them they are struggling because they are losing population. One of the reason is cultural, the kids do not want to stay in those towns and want to go to houston, dallas, new york, l. A. People in issue is this country because of aging population. With each warring other to attack people. Texas is winning the war. We are. We are attracting people. Losing states are losing people and thats what ruralthe city versus issue worse. Diagnosis get this right, not just for Monetary Policy<\/a> but to inform policymakers so we make good decisions from policy point of view generally. My concern right now is we may be confusing the diagnosis of what is going on. Lets talk about the debt situation. There is debate about whether we should raise the debt ceiling on arts, whether we do or we dont the fact of the matter is , we have a lot of debt. And especially when you factor in the unfunded future entitlements is at 46 trillion. What changes are needed here . I call this the end of the debt super cycle. What do i mean by that . Whether we are conscious of it or not to most of my lifetime and im getting a lot older we older, through most of my lifetime, we in this country when we have a downturn or economic weakness we basically increase our debt to gdp often to stimulate more growth. We didnt call it increasing debt, we call it spending, but the net effect of it was that we leveraged up to stimulate more growth. As derek just said, we are at the end of the road here. Public debt, public government, about 70 of gdp and entitlements that we said 46 trillion. It is not a surprise with this polarization in dc and more partisan and all that, but there is one of the thing going on. It is not a surprise we have not seen fiscal policy in about eight years. It is because we are highly leveraged. People in d. C. Know it, the capacity and you are seeing it play out in all of these debates with health care, tax reform and all that. Why is it so hard . One of these issues as we are very highly leveraged and were very aware of it, we dont have a lot of room to increase gdp debt. That is why it has been Monetary Policy<\/a>, not just in the United States<\/a>, but most of the western world. It has been mainly Monetary Policy<\/a>. Banker, and you would think im fond of the Monetary Policy<\/a>. Policy is Interest Rates<\/a> and use of our Balance Sheet<\/a>. It is not Structural Reforms<\/a>. What is the example of Structural Reforms<\/a> . Skills training, immigration , and Infrastructure Spending<\/a> would be in the mix. We are at this stage of our development where Monetary Policy<\/a> alone will not do the trick, but will highly leveraged the challenge. Had you make other fiscal and Structural Reforms<\/a> so that we can grow greater because Monetary Policy<\/a> alone has a role to play. It alone cannot deal with these big secular drivers we just talked about. I think it is good for a central banker to say that. We have an Important Role<\/a> to play but we need broader policy. Eight year after the crisis it is time for broader Economic Policy<\/a> if we are going to grow faster. Wise is so critical to the debt that we grow faster . You say what is bad about 2 2 . It would not be a problem if it were not so highly leverage. Nominal gdp is what Services Debt<\/a>. What Services Debt<\/a> of a company . Pretax income. You needed to service debt. Gdp is our income. If you grow slowly we will get more leverage, particularly as we age. I think we have to find ways to grow faster we have to restructure the debt or likely both. That is the big challenge we face. Derek the good news is mr. Kaplan just trying to cheer you up. [applause] households are in great shape. The good news is, 2007 household sector was highly leveraged. And debt togdp income was historically high. We did not notice it that much because that to asset values looked totally reasonable. But asset values for prices were very high. Weh the last eight years have gone through a painful eight or nine years red has slowly deleverage. The incomes of grown and they have an increased debt. Now the household sector is in decent shape. From a balance point Balance Sheet<\/a> point of view. That is why i am pretty confident, while 2 and two at a quarter percent might not be what we hoped for, i am pretty confident that there is a good underpinning to our gdp growth. The trick is now, that is great, how do we grow faster . Derek what about the stock market . As a banker you probably cannot speculate on the stock market. Mr. Kaplan it is looking good. Derek are we headed higher, or are we facing an impending crash . Mr. Kaplan we were joking around before. In my previous career i was in the stock market. In this job, not so much. [laughter] mr. Kaplan i make a few observations. It occurs to me, i will say some antiseptics things here. The difference of whats happened in the markets, we went from rates are low but they will probably go up, to rates are low, and i wonder when they will go up, to rates are low and they are going to state below. It is based on expectation of rates. The reality is, why are rates so low . It was at 209 the last i looked. Driver two main drivers of the 10 year treasury. Ne is prospective gdp growth expectations of future gdp growth is the primary driver of the 10 year. The secondary driver, which is global liquidity, a lot of global liquidity has been created by central banks, including the fed. That is why we should improve our Balance Sheet<\/a>s as improve reducing our Balance Sheet<\/a>. I think the main reason is prospective future growth being weak. The market has gotten ahead and it will stay lower. As a central banker, i do not worry as much as people might think about elevated valuations. Historically corrections alone, they dont mean create a Systemic Risk<\/a>. What does mean create a Systemic Risk<\/a> is the elevated evaluation at elevated level of debt. Healthy real estate values, maybe we have way too much leverage associated to finance it. Had veryhy the fed has tough we have had very tough macro credential policies, regulatory policies. Over the last fee years, they have been tamping down commercial real estate exposure of banks as a percentage of the total cap. I personally think there needs to be regularly really for midsize banks. I think for big banks, we have been very well served by very tough macro credential policies. That explains why the market evaluations are more elevated trade that alone you could argue is too high and low. Me isrt that worries excess debt building up alongside it. Right now we took a snapshot. I think it is still manageable, but i think it is probably not the time to be weakening macro prudential policies, especially for big banks. We should be giving regulatory relief to Small Midsize<\/a> banks. High valuation and good macro potential policies probably go together. If we learned everything anything from 20072008, we have health evaluations, low rates and regulatory loose policies and we paid the big price for it. Derek monitoring the yield curve is critical. I watch the yield curve for the last many years. I look at the yield curve i look at it for a few reasons. Aredo we know when we accommodative or restrictive . There is a theoretical concept always in my mind when i think about Interest Rates<\/a>. That is called the neutral rate. You will not find it on your bloomberg screen. It is a theoretical rate, it is the rate that we are neither accommodative or restrictive. Ok . The curve is instructive. There are a lot of things we at. The 10 year treasury tells you something about what the neutral rate might be. My own view is the following, the neutral rate today, the much closerrate is to two and a half percent than it is to 3 . If you asked me 10 years ago i would say it is closer to 4 or 5 . Why is it so much lower . Prospective growth driven heavily by aging demographics and slow workforce. The fed at 100 125, which is where we are is accommodative. I dont think it is as accommodative as people think. I watch the yield curve to learn what the market is saying about perspective growth and prospective rates. That reinforces that the neutral feds fund rate, where we settle out ultimately over the next x is closer to two and a quarter, two and a half because of sluggish prospective future growth. That is what the yield curve is telling us. Derek lets move to the Global Economy<\/a>. What are the three or four major risks you see in the Global Economy<\/a> . Which countries or regions due to the monitor in the fed when you consider policy . Lets jump around the world really fast. Europe is doing better and going faster, but that is in the context of less than 2 gdp growth. Yes they are doing better, but they have a lot of the same high debt to gdp. Issues, theructural same issues we do. That is europe. Canada have their own issues. Mexico actually has very good demographics. Canada has aging demographics like us. Mexico has been through a lot over the nap last number of years with weakness and energy and then worry about our trading relationship. Their currencies have been all over the place. A lot of volatility and they brave their own fed funds rate multiple times to try to find inflation. Theyre the one country in the world that does have inflation and they are trying to get control of it. Then we go to asia. Asia is a source of growth for the world. A better demographics, better government and the gdp accepts. The biggest part of asia is china. In asia, iran up business for my firm in asia in the middle of my career. The character of china and its impact in the world has changed radically. It is dramatically bigger. The way it has grown, it will grown this year. It will grow this year six and a half percent gdp. I could have told you that six months ago and i could tell you six months from now. The reason is, the way they do that is a target gdp level then they use debt increasing their own debt to gdp. Either Infrastructure Spending<\/a> or spending on state owned enterprises to fill the gap. They basically doubled that to gdp and china. Unlikely to be sustainable. Itn i look at Global Growth<\/a>, is better, that is good news, except part of that being better is China Growing<\/a> 6. 5, 6. 7 . Theetty confident that world will have to get used to China Growing<\/a> more slowly. There will not be able to keep using increasing debt to gdp to simulate gdp growth. We have to get used to their gdp floating down. Ofy are now a big percentage Global Growth<\/a>. The good news is, for lots of reasons, i think emerging markets are more stable. I think Global Growth<\/a> picture looks better. Getpt we should just comfortable with the idea that part of that Global Growth<\/a> is china. I think it is likely that chinas growth will need to drift lower because they will need to stop increasing debt to gdp to achieve it. Better Global Growth<\/a> is a tale one for the United States<\/a>. It helps us grow more. Sourceation i think is a of opportunity for the United States<\/a>, not a threat. One of the keys to the future of the United States<\/a> is he been doing more to integrate. Our companies are doing this by the way. The company to integrate more with the rest of the world in a sensible way so that we can grow faster. Jackson hall made a big point iran protectionism. Growingee a threat from in terms of economy . Mr. Kaplan it is a concern. He made two points. Is ants to make sure it good strong back for policy and he is worried about , again, hesm because sees the same problems that i just talked about. Aging demographics, high levels of Government Debt<\/a> to gdp. Outing inward, and closing is probably going to mean mean we will grow more slowly. At a time when, because of our demographics we will roll more slowly anyhow. Believe,hat his, is, i we need to make smart trade decisions, we need to make smart immigration decisions. Areask these two policy are sources of opportunity for , and source ises probably greater growth. Even though and the National Debate<\/a> it is characterized a little bit more as threats. I think that is not the case. Pluses arey draw being attributed to those two things, they are much more likely in the corner of the United States<\/a> with technology. By the way, those trends on disruption are accelerating and accelerating in a palette in a powerful way. Talk about the oil markets. What is your outlook for the Energy Sector<\/a> . Mr. Kaplan lets step back. It is our view to do a lot of work on energy. I see mark here. It is a great job. We are heading towards Global Supply<\/a> demand balance. We spent the last couple three trying to find it. We found it by the u. S. Cutting its output about one Million Barrels<\/a> a day, which was really painful. Approximately 9. 6 Million Barrels<\/a> a day to a. 6 Million Barrels<\/a> a day. We were cutting, those cuts were almost fully, more and opec,t by growth and russia, and other oilproducing nations. We did not cut supply at all. We continue to grow supply. The reason we get into balance is because demand is growing 1. 3 Million Dollars<\/a> 1. 3 Million Barrels<\/a> a day. Now you flip. At the end of 2015, opec announces opec and other nations announced that they will cut to about 1. 8 Million Barrels<\/a> a day. Significant. Market, supply and demand is about 96 Million Barrels<\/a>. Price. Lp support the the United States<\/a>, it has the shale industry that can move quickly. We have gone from a low of 8. 6 Million Barrels<\/a> a day to about a. 9 Million Barrels<\/a> at the end of last year. It is our judgment we will finish at 9. 8, 9. 9. While opecs cutting, we are now growing again. While opec is growing we are a growing again. I think for the next number of years we have what i call a fragile equilibrium. Will see more drilling and more output. If you see the price break which i dont expect by the way down to the 30s you will see supply decline. If you see the price break, which i dont expect, you will see supply decline, and because there is a slight decline you need to produce more and more to keep growing. It would not surprise me to see you may have periods where you break above or below but there will be a regulator and they will either be increasing supply i would guess the new norm is probably in the 45 to 55, revolving around 50, and there will be periods where it will go way down and way up and neither is going to wind up being true because you have this regulator which is the shale industry. We are in this equilibrium for the next three to five years and then because the majors are not investing in them. And they stopped investing for years shale has got great additional capacity but has a very fast the client curve. It would not surprise me five to 67 years from now we could be in a global under supply situation because we dont have these long life projects to fill in. In the short run we will be in the equilibrium which will be choppy. The dynamics in the long run are probably pretty solid. A little bit on Hurricane Harvey<\/a> can you comment a little bit on Hurricane Harvey<\/a> in the educations of that. As i said to our team here when the hurricane hit and i flew back early to get here. We had agreed for the first days are focus can be on whatever it said. Its rescue recovery whatever needs to be done. We 100 fema people in a call center downstairs so we been trying to do whatever needs to be done. Just to protect the health and welfare and the citizens of the state. Now as we are starting to emerge we are having more conversations about the impact. So obviously we know there will be a tremendous loss of property a lot of it uninsured charitable and other efforts to try to help them recovery. A lot of refinery capacity is getting down. It will be a temporary problem. We know there may be some outages in production. The big issue is going to be decided rebuild in the history of the storms is a following. We believe this pattern is a good one for the Third Quarter<\/a> of this year certainly in texas for sure but in the United States<\/a> you will see some weakness in gdp. We will set a positive growth there will be some amount where we will grow more slowly than we wouldve. Certainly in texas for sure and in the country. And then what normally happens with a period of weakness and then what normally happens you start to have ketchup. We will have every building in texas. We will be rebuilding here and what history is showing as you grow more slowly for a brief time and then you grow faster than you wouldve gotten and eventually as a country and as i think estate you get back to when you catch up to where you wouldve been. I would be relatively optimistic. Ill be optimistic after a. Optimistic after a period of weakness we will be strong we will grow more strongly and we will ultimately recover it to where we went to bed the issue as i have not mentioned the Unemployment Rate<\/a> of 4. 4 percent in the United States<\/a> we are already facing labor shortages in the face of texas. Even in unskilled workers. One of the challenges and this just get back to workforce growth. We need to construction workers and other workers to help us rebuild and my guess is we are watching that very carefully. That was a challenge even before the storm and i think it will be magnified to some extent. We need workers to come and help us rebuild but im confident about the future. We need to switch to Monetary Policy<\/a>. Earlier this year she talked about the fed shrinking its Balance Sheet<\/a>. Do you think the economy isnt Strong Enough<\/a> shape i was an advocate in march that we should raise the rate. I still feel while the neutral rate may be lower i felt that we could remove some amount of accommodation i feel much better i think were in a better position in the other, i face regularly as low Interest Rates<\/a> in accommodation are not free. Its not free. There is a penalty in the imbalances created. It creates distortions and you should never get too comfortable that the Monetary Policy<\/a> doesnt have a cost. It does. I feel like we should remove some amount of accommodation. We were well on her way to flow full employment. Now the word 10125 we are little less accommodative than we were. I believe that we should be patient here. Here is why. I believe a lot has been written about the fact that we are not reaching our 2 inflation target. I think that is because of the following. Historically at 4. 3 and is unemployed plus parttime workers who would like to work fulltime. The pre recession low as 8. 1 percent. That tells me we are heading towards full employment. Historically when weve have this type of labor market we have almost had wage pressure and that is translated into inflation. Not this time. I think a big reason why and i mentioned Technology Enabled<\/a> disruption globalization also has a role. China is built that capacity so highly we have over supply and steel and other industries. If youre a business person and i talk to Business People<\/a> all day long every week ive never been where ive been talking to Business People<\/a>. They are in a price war. There is a new disruptive competitor with a new approach where they are being disrupted right now and then i had Pricing Power<\/a>. Consumers have shopping ability that we have never had before. Price used to be better convenience from home i think that is a structural trend is powerful and i think that is offsetting some of the cyclical trend. So i think we can afford to be patient i still think that cyclical force are likely to lead to inflationary pressures but i think we can afford to be a little bit more patient. We may still raise rates this year. I want to wait and see more information out of these cyclical forces and how they pay out. I dont feel the same way about the Balance Sheet<\/a>. I feel strongly we should break begin the roll down to the Balance Sheet<\/a> as soon as we can. It was 800 billion back precrisis we built it up through quantitative easing and other measures we thought were necessary and you can debate the last couple steps but they were necessary to try to start to stimulate the economy. We are now eight or nine years post crisis. And i think afford half trillion dollar Balance Sheet<\/a> is such that i think all of the studies that i see suggest to me we can face down this phase down this Balance Sheet<\/a>. Not by selling insecurities but not reinvesting when they secure. I think we have a plan we have announced to phase it in. Gradually enough. That we can on the mortgagebacked securities market. By the way to sort of reinforce that i think we can do this without a material disruptive effect. Look with the 10 year treasury has done since we announced the plan. The market basically things were going to start this sometime this year. And ten year treasury has basically drifted lower. Not just because of the plan but because of other factors. I believe the country and the fed bid will be while served if we can work this Balance Sheet<\/a> down because i do believe a number of years from now if we have another recession we made while not have a lot of dry powder in Interest Rates<\/a>. I think will be limited how fast we can raise rates and what the neutral rate is. I think we need to worked on her own Balance Sheet<\/a> to be able to have that power to use that tool when we need in the future. I feel strongly that we ought to begin this now. I think the economy can withstand that. At 6 50. To open up to the floor for questions. If you have a question over there. Right here. Im reading minor dip in 19 but basically ten years of pretty steady solid growth would you agree with that. A couple a quarters down. It would be technically a recession. I will say this. Im a business person i been forecasting my whole life. And the one thing youre probably not going to hear from me having been in the job for a couple years probably well not forecast out but beyond 17 and 18. Heres why. There is too many other factors listen. The good news for the economy give a strong consumer. Also the good news is we have strong macro potential policies. I feel pretty confident that we can grow 2 plus of this year and i think into next year. And then the question is what are the other circumstances around the world i would prefer to keep it to 17 are 18. I saw a hand up over there. You mentioned Technology Enabled<\/a> disruption had ac the advent of the self driving vehicles that can disrupt this. We probably have a lot of Different Industries<\/a> represented here. When you say self driving car thats obviously a disruption. There is a risk that millions of people i can have to find a different line of work. If you are one of those drivers that is in another line of work today you will be a lot more adaptable if you have a college education, studies have shown or if you live in the community that has very strong Skill Training Program<\/a> in your open to be a pipe fitter. Automotive technician because this is accelerating and this is just one of 20 examples. Businesses need to partner with local education institutions and its got to be done locally because Worker Mobility<\/a> is a is historically low. If you lose your job you are unable to move 500 miles to get another job. You have got to get retrained. The country has to gear up. That is a technology and able to disruption that i can see. I never even thought of that. This is accelerating at the trends are the same. Workers are being replaced by technology. Its probably worsening. What do you think is happening to your Pricing Power<\/a> with this kind of thing happening and you can go right down the line. The structure the economy is changing dramatically. What does it mean to the fed . It means i have to be open to facing reality. It may not be the reality i am used to but i have to have an open mind. It also means broader policy makers in this country they need to look ahead not behind and do a diagnosis based on the facts because its can be more important to get these policy judgments right. We had time for two more questions. I try to pre frame this question very quickly. You have written eloquently about the skills gap, about getting people more participating in the workforce. You also have some great books on leadership. One of them you talk about how there are blank stares when you talk about leadership. I think there is a responsibility on all sides, we had have a lot of failures and retraining programs. A lot of people not successfully reentering the workforce for example. And there is a poll that needs to occur from the other side as well. We need to be much better leaders. I agree with that. And there are some great examples which i love the Dallas Community<\/a> college spent a lot of time with joe me and they do an incredible job. It is an example they go out to businesses its a pretty good model. There turning out thousands of people that are going into key jobs. Leadership is the number one thing a leader does is open to learning. If you think if you are the leader of a country or company and you think you have all the answers, look out, we are headed for trouble. The number one thing i learned a long time ago was i have to be open to learning and say i was wrong. I changed my mind. I would like your opinion. Its a sign of strength not a sign of weakness. I think that is an important model for leaders today. I dont understand how thats a good one. [laughter] unfortunately our question of the year is we are in the midst of the trump rally, 18 to 20 increase since the election. Likely root cause is the potential for tax reform. A more favorable business climate. I wanted to see if you have any insights on the prospects for any structural reform. With the tax code or anything like that. I will start with the premise of your question. Why the stock markets rallied. This isnt what i am supposed to be talking about but i would say i think a lot of people would probably challenge a lot of the premises about why the markets rallied stop my guess is it probably has a lot more to do with very solid corporate earnings, strong consumer underpinnings, and the fact that people expect rates to stay lower for longer which is affecting those. Then that gets to prospects for other policies and ever since january, and it has been great so far, i had not taken into account any other i want broader economic policies but we havent yet taken them into account. So heres why. Some of the policies been discussed would be very good for the economy. Infrastructure spending if its done thoughtfully, maybe the pendulum has swung too far. Other things that could help tax reform, underlining the word cutrm, as opposed to a tax which would create a shortterm then be more leveraged. Those are be positive. I think the jury is out because the consumer is so critical. The jury is out as to whether it is positive or negative for gdp growth, over the next few years. My approach has been to basically wait to see what policies are going to be enacted. Dont guess because you guess wrong. Give my views on potential policies which would be helpful. Distribute it widely to policymakers. I have a feeling that if im doing that im probably not the only one taking that approach. Including people that invest in the market and make other business decision. I talked to other Business People<\/a> and market people everyday. I guess is people are hopeful, and i believe they are, but i think probably the jury is out in making most decisions based on what they can see. Do i think some of these things would be helpful . Yes, they have the potential to be helpful. Depending which mix of policies are inactive and address some of these big, secular drivers that i just talked about. Terrific. Lets give mr. Kaplan hand. [applause] thank you very much. [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap. Org] [captions Copyright National<\/a> cable satellite corp. 2017] in his weekly address, President Trump<\/a> honors Founding Fathers<\/a> and the 230th anniversary of the United States<\/a> constitution. Senator dick durbin of illinois gave the democratic address, discussing the daca immigration policy. Americans, i would like to begin by continuing to send our prayers to all of those affected by hurricanes harvey and irma. From texas to louisiana to florida, alabama, south carolina, to the Virgin Islands<\/a> arepuerto rico, we coordinating closely with local authorities to help everyone impacted by these st","publisher":{"@type":"Organization","name":"archive.org","logo":{"@type":"ImageObject","width":"800","height":"600","url":"\/\/ia600805.us.archive.org\/33\/items\/CSPAN_20170917_020200_Monetary_Policy_and_the_Economy\/CSPAN_20170917_020200_Monetary_Policy_and_the_Economy.thumbs\/CSPAN_20170917_020200_Monetary_Policy_and_the_Economy_000001.jpg"}},"autauthor":{"@type":"Organization"},"author":{"sameAs":"archive.org","name":"archive.org"}}],"coverageEndTime":"20240629T12:35:10+00:00"}