Transcripts For CSPAN2 Monetary Policy And The Economy 20170

Dallas. He discusses Monetary Policy in the future of the Global Economy. Good evening. Excited to be here with you all tonight. 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 to 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 way the market and likely drive down the Unemployment Rate and other measures of employment slack. And we can talk about a number of reasons why gdp growth is more sluggish now than it was ten years ago. Fifteen 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. The Labor Participation rate was about 66 today at 63 percent. Our research suggest the bulk of that decline is demographic. It gets worse over the next ten years. We think the Participation Rate is getting out below 61 percent. There are number of other big sexual or secular trends and help explain while 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 even of that has pretty much plateaued. Improving skills training. There is many more skilled jobs opening than the supply of workers. And yes immigration is a key part of this. Theyve made up over half of the workforce. 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 can be very hard to grow gdp. Immigration is essential and distinctive competence of the United States and its one of the reasons we had been able to grow over many decades. The as 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 getting a like this but the demographic trends are going to intensify. Let me stop there and talk a lot more about this. You often referred to for trends. Globalization and technology. Those at last to last to get a little confusing and time. Key took a little bit about this. I took of aging demographics and thats a big driver of gdp. The second big driver which doesnt supply dash surprise you is globalization. It used to be you and a lot of industries that got moved offshore. Lost a lot of jobs. Et cetera. That is very true. Today globalization has changed dramatically. The trade deficit that we run with mexico. As you know. Isnt it intermediate goods deficit today. Weve shown about 70 of the goods we import in the United States and mexico our intermediate. These are goods going back and forth across the border. These are trade partnerships and logistics between manufacturing and other companies here in mexico that have allowed those u. S. Companies to remain more competitive and build jobs in the United States. By the way in contrast most of our deficit with china as a final goods deficit. Very different. With globalization and what it means today in some cases. Today more likely means the integrated supply train chain and allows them to keep jobs and keep them from going to asia. Is a big driver. And its misunderstood. It gets confused sometimes with Technology Enabled disruptions which is a much more powerful driver today. And much more likely explains many job losses in industries today then does globalization we had attributed many job losses here. It must be trade or immigration. More likely job losses it today i have nothing to do with either the much more to do with the fact that amazon versus retail and every other industry in the disruptive is able to drive down costs improve options for consumers and tend to have the effect of limiting Pricing Power of businesses today. And if you have a High School Education or less youre much more likely to be vulnerable to be squeeze out of your job and because skills training is not beefed up enough in this country youre very likely the next job you take you might be in a job looks a much lower pain and job. As derek mentioned we are confusing the two i sent a lot of time talking about this. If we attribute job losses to globalization or in fact coming as a result of Technology Enabled disruption our policy prescriptions are also going to be misguided. I actually think we are at the stage in our history ironically we are now at the point where globalization is in fact an opportunity for greater growth in this country either to integrated supply Chain Logistics or actually growing the workforce through immigration in fact the thing that we are attributing many of these losses to requires much 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 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 reasons is cultural. But the second issue is because of aging population we are at zero war for people in this culture. Texas by the way is winning the war we are tracking people many other states can rattle them off as making it even worse because we are lacking population. The diagnosis of these issues its a big part of what we do because we need to get the diagnosis right not just for Monetary Policy but to inform policymakers so we make a decisions from policy point of view. And my concern right now as we may be confusing the diagnosis of whats going on. There is debate about whether we should raise the debt ceiling the fact of the matter is we have a lot of debt. And especially when you factor in the unfunded future entitlements. What changes are needed here. I call it the end of the debt supercycle. Whether we are conscious of it or not to most of my lifetime and im getting a lot older we in this country when we have a downturn or economic weakness we basically increase our debt to gdp often to stimulate more growth. The net effect it was. As derek just said what kind of at the end of the row here. It is not a surprise with this polarization in dc and more partisan and all of that. Theres one other thing going on. It sent us a price we havent seen any fiscal policy in about eight years. Its because we are highly leveraged. People in dc know it. So the capacity and you are seen play out in all of these debates were having on healthcare and tax reform. Whats wrong with these people. One of these issues as we are very highly leveraged and were very aware of it. This is white for the last eight years most of the Economic Policy has been Monetary Policy not just in the United States the most of the rock western world. An essential banker and you would think im very fond of Monetary Policy there are limits to Monetary Policy. It is not structural reforms. Skills training would be structural reform. We are at the stage of our development where Monetary Policy alone will not do the trick but we are highly leveraged. How to make other structural reform so we can grow greater because of Monetary Policy Monetary Policy alone has a role to pay it alone cannot deal with some of these big drivers that we just talked about. I think it is good for a central banker to say that. Eight years after the crisis. Its time for broader Economic Policy if we are going to grow faster. You say whats up at about 2 . Heres the problem. It would not be a problem if it werent so darn highly leveraged. So nominal gdp is what they have. What is service debt of a company. Pretax income. You need it. If youre going to grow very 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. Households 2007 it was historically highly leveraged. The reason we did not notice it most of us did not notice it was the debt to asset values looked totally reasonable. The last eight years weve gone through a done through a painful eight or nine years. Not actually by reducing debt that much but the incomes had grown and out of the household sector is in pretty decent shape from a balance point of view. And pretty confident while 2 into a quarter might not be what we hope for there is a good under pinning to gdp growth. As a banker you cant speculate on the stock market but its looking good. Are we headed higher. We were joking around before. In this job i am not so much. So heres what i say. I make a few observations. It occurs to me and i will say some antiseptic things here. The difference of whats happened in the markets. We went from rates are low but theyre probably the probably going to go up to rates are low and i wonder when theyre good to go up to rates are low in the oregon state low. As all of you know cap rates as you name it are based on expectation of rates and the reality is why our rates so low. The number one drivers of the ten year treasury. One is perspective gdp growth. Expectations of future growth is the primary driver in the secondary driver is global liquidity. Thats why i believe strongly we should have the process of reducing our Balance Sheet. I think the main reason for the tenure as prospective future growth bead week. At that is the case and the markets have got ahead this is going to stay lower for longer. As a central banker i dont worry as much as people might think about elevated valuations. Historically corrections alone what does create that is with the elevated evaluation and your vet elevated level of debt. You got very healthy real estate values. Maybe we have way too much leverage. Associated to finance it. Thats why its have a very tough macro credential policies. Over the last few years. We been tamping down commercial real estate exposure of banks. I personally think there needs to be regulatory relief. I think weve been we been very will served by very tough macro prudential policies. This helps explain why they are more elevated. The part that really worries me is excess debt. Right now we just took a snapshot i think it is still manageable. I think this is probably not the time to be weakening the policies especially for the big banks. I think we should be giving regulatory relief. But i think the high valuation and get macro potential policies probably go together and if you learned anything from 2017 and i think we should make that mistake again. I had watched the yield curve for the last many years. The reason i look at this you unit were talking about this. There is a theoretical concept always in my mind and is called the neutral rate. You are not going to find it on your bloomberg screen. The curve is instructive. The ten year treasury to ten tells you a Little Something about what the neutral rate might be. If you asked me ten years ago i was its close to 45 . Its driven heavily by aging demographics. At 100125 which is where we are right now is accommodative. I dont think its think its as accommodative as people think. That where we settle out ultimately here over the next time is probably close to two and a quarter and 20. Because of sluggish perspective future growth. This goes to the Global Economy. What are the three or four major risks you see in the Global Economy and what countries or regions do typically monitor when you consider policy. Heres the good news. You hear this all the time. That is the context of less than 2 gdp growth. Have a lot of the same high debt to gdp. They have a lot of the same issues we do. Thats year. Mexico and canada had their own issues mexico actually has very good demographics. Mexico has been through a lot over the last number of years particularly with weakness in energy and worry about our trading relationships. Their currencies have been all over the place. And they had raised their own fed funds rate multiple times to try to fight inflation. Then we go to asia and asia is a source of growth i think for the world a better demographic. Probably better Government Debt to gdp. The biggest part of that is china. And china is the impact on the world that has changed dramatically. In the way it has grown its gonna grow this year about six and a half gdp. The reason is the way they do that they target the gdp level and then they use debt increase in their own debt to gdp. They basically had doubled that gdp. Unlikely to be sustainable when i look at Global Growth its better thats good news except part of that been better as China Growing 6. 5 and 6. 7 percent. And pretty competent ultimately the world is good have to use a China Growing more slowly. We will have to get used to their gdp floating down. They are now a big percentage of Global Growth. I think Global Growth picture looks better except we should just get comfortable with the idea that part of that is china and i think its likely that they will need to drift lower because they are gonna need to stop increasing debt to gdp to increase it. Globalization is a source of opportunity for the United States not a threat i think one of the keys to the future of the United States is even doing more to integrate our companies are doing this by the way. As for the country to integrate more with the rest of the world in a sensible way so that we can grow faster. You made a big point around protectionism. Do you see a threat from that. Its a concern. He wants to make sure this good strong back for credential policy. Hes worried about first section is because again he sees the same problems i just talked about. Aging demographics. And so turning inward enclosing out is probably going to mean that we will grow more slowly at a time when because of our demographics we are going to likely grow more slowly anyhow and i think what his comment is we need to make smart trade decisions. I think the two policy areas are sources of opportunity for the United States and a the source of the probably greater growth. In the National Debate they are being characterized a little more as threats. I think they are being attribute attributed to those two things are much more likely going to write within the corners of the United States with technology and by the way those trends are accelerating and accelerating in a powerful way in my judgment. Fifty to 60 per barrel. What is your outlook for the energy sector. We are heading towards Global Supply demand balance. We spent the last couple of three years painfully trying to find it. And we found it by the u. S. Cutting its output about a mere Million Barrels per day which is really painful while we were cutting those cuts were almost fully offset by growth and opec. We do not cut supply at all in fact we continue to grow supply in the recent we are getting into balance is because demand is growing about 1. 3 Million Barrels per day. Now you flip and at the end of 2016 they announce that they are going to have cuts of about eightpoint 8 Million Barrels per day. That helps support the price so the United States they can move very quickly to about 8. 9 Million Barrels per day. Its our judgment we will finish that. So we are now 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. And because there is a strong decline curvature you need to produce more and more to keep growing. It would not surprise me to see 45 or 50 you may have times where re break above 50. There will be a regulator and they will either be increasing supply i would guess the new norm is probably in the 45 to 50. It revolves around 50. 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 Monetary Policy<\/a> in the future of the Global Economy<\/a>. Good evening. Excited to be here with you all tonight. 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<\/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 to 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 way the market and likely drive down the Unemployment Rate<\/a> and other measures of employment slack. And we can talk about a number of reasons why gdp growth is more sluggish now than it was ten years ago. Fifteen 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. The Labor Participation<\/a> rate was about 66 today at 63 percent. Our research suggest the bulk of that decline is demographic. It gets worse over the next ten years. We think the Participation Rate<\/a> is getting out below 61 percent. There are number of other big sexual or secular trends and help explain while 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 even of that has pretty much plateaued. Improving skills training. There is many more skilled jobs opening than the supply of workers. And yes immigration is a key part of this. Theyve made up over half of the workforce. 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 can be very hard to grow gdp. Immigration is essential and distinctive competence of the United States<\/a> and its one of the reasons we had been able to grow over many decades. The as 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 getting a like this but the demographic trends are going to intensify. Let me stop there and talk a lot more about this. You often referred to for trends. Globalization and technology. Those at last to last to get a little confusing and time. Key took a little bit about this. I took of aging demographics and thats a big driver of gdp. The second big driver which doesnt supply dash surprise you is globalization. It used to be you and a lot of industries that got moved offshore. Lost a lot of jobs. Et cetera. That is very true. Today globalization has changed dramatically. The trade deficit that we run with mexico. As you know. Isnt it intermediate goods deficit today. Weve shown about 70 of the goods we import in the United States<\/a> and mexico our intermediate. These are goods going back and forth across the border. These are trade partnerships and logistics between manufacturing and other companies here in mexico that have allowed those u. S. Companies to remain more competitive and build jobs in the United States<\/a>. By the way in contrast most of our deficit with china as a final goods deficit. Very different. With globalization and what it means today in some cases. Today more likely means the integrated supply train chain and allows them to keep jobs and keep them from going to asia. Is a big driver. And its misunderstood. It gets confused sometimes with Technology Enabled<\/a> disruptions which is a much more powerful driver today. And much more likely explains many job losses in industries today then does globalization we had attributed many job losses here. It must be trade or immigration. More likely job losses it today i have nothing to do with either the much more to do with the fact that amazon versus retail and every other industry in the disruptive is able to drive down costs improve options for consumers and tend to have the effect of limiting Pricing Power<\/a> of businesses today. And if you have a High School Education<\/a> or less youre much more likely to be vulnerable to be squeeze out of your job and because skills training is not beefed up enough in this country youre very likely the next job you take you might be in a job looks a much lower pain and job. As derek mentioned we are confusing the two i sent a lot of time talking about this. If we attribute job losses to globalization or in fact coming as a result of Technology Enabled<\/a> disruption our policy prescriptions are also going to be misguided. I actually think we are at the stage in our history ironically we are now at the point where globalization is in fact an opportunity for greater growth in this country either to integrated supply Chain Logistics<\/a> or actually growing the workforce through immigration in fact the thing that we are attributing many of these losses to requires much 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 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 reasons is cultural. But the second issue is because of aging population we are at zero war for people in this culture. Texas by the way is winning the war we are tracking people many other states can rattle them off as making it even worse because we are lacking population. The diagnosis of these issues its a big part of what we do because we need to get the diagnosis right not just for Monetary Policy<\/a> but to inform policymakers so we make a decisions from policy point of view. And my concern right now as we may be confusing the diagnosis of whats going on. There is debate about whether we should raise the debt ceiling the fact of the matter is we have a lot of debt. And especially when you factor in the unfunded future entitlements. What changes are needed here. I call it the end of the debt supercycle. Whether we are conscious of it or not to most of my lifetime and im getting a lot older we in this country when we have a downturn or economic weakness we basically increase our debt to gdp often to stimulate more growth. The net effect it was. As derek just said what kind of at the end of the row here. It is not a surprise with this polarization in dc and more partisan and all of that. Theres one other thing going on. It sent us a price we havent seen any fiscal policy in about eight years. Its because we are highly leveraged. People in dc know it. So the capacity and you are seen play out in all of these debates were having on healthcare and tax reform. Whats wrong with these people. One of these issues as we are very highly leveraged and were very aware of it. This is white for the last eight years most of the Economic Policy<\/a> has been Monetary Policy<\/a> not just in the United States<\/a> the most of the rock western world. An essential banker and you would think im very fond of Monetary Policy<\/a> there are limits to Monetary Policy<\/a>. It is not structural reforms. Skills training would be structural reform. We are at the stage of our development where Monetary Policy<\/a> alone will not do the trick but we are highly leveraged. How to make other structural reform so we can grow greater because of Monetary Policy<\/a> Monetary Policy<\/a> alone has a role to pay it alone cannot deal with some of these big drivers that we just talked about. I think it is good for a central banker to say that. Eight years after the crisis. Its time for broader Economic Policy<\/a> if we are going to grow faster. You say whats up at about 2 . Heres the problem. It would not be a problem if it werent so darn highly leveraged. So nominal gdp is what they have. What is service debt of a company. Pretax income. You need it. If youre going to grow very 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. Households 2007 it was historically highly leveraged. The reason we did not notice it most of us did not notice it was the debt to asset values looked totally reasonable. The last eight years weve gone through a done through a painful eight or nine years. Not actually by reducing debt that much but the incomes had grown and out of the household sector is in pretty decent shape from a balance point of view. And pretty confident while 2 into a quarter might not be what we hope for there is a good under pinning to gdp growth. As a banker you cant speculate on the stock market but its looking good. Are we headed higher. We were joking around before. In this job i am not so much. So heres what i say. I make a few observations. It occurs to me and i will say some antiseptic things here. The difference of whats happened in the markets. We went from rates are low but theyre probably the probably going to go up to rates are low and i wonder when theyre good to go up to rates are low in the oregon state low. As all of you know cap rates as you name it are based on expectation of rates and the reality is why our rates so low. The number one drivers of the ten year treasury. One is perspective gdp growth. Expectations of future growth is the primary driver in the secondary driver is global liquidity. Thats why i believe strongly we should have the process of reducing our Balance Sheet<\/a>. I think the main reason for the tenure as prospective future growth bead week. At that is the case and the markets have got ahead this is going to stay lower for longer. As a central banker i dont worry as much as people might think about elevated valuations. Historically corrections alone what does create that is with the elevated evaluation and your vet elevated level of debt. You got very healthy real estate values. Maybe we have way too much leverage. Associated to finance it. Thats why its have a very tough macro credential policies. Over the last few years. We been tamping down commercial real estate exposure of banks. I personally think there needs to be regulatory relief. I think weve been we been very will served by very tough macro prudential policies. This helps explain why they are more elevated. The part that really worries me is excess debt. Right now we just took a snapshot i think it is still manageable. I think this is probably not the time to be weakening the policies especially for the big banks. I think we should be giving regulatory relief. But i think the high valuation and get macro potential policies probably go together and if you learned anything from 2017 and i think we should make that mistake again. I had watched the yield curve for the last many years. The reason i look at this you unit were talking about this. There is a theoretical concept always in my mind and is called the neutral rate. You are not going to find it on your bloomberg screen. The curve is instructive. The ten year treasury to ten tells you a Little Something<\/a> about what the neutral rate might be. If you asked me ten years ago i was its close to 45 . Its driven heavily by aging demographics. At 100125 which is where we are right now is accommodative. I dont think its think its as accommodative as people think. That where we settle out ultimately here over the next time is probably close to two and a quarter and 20. Because of sluggish perspective future growth. This goes to the Global Economy<\/a>. What are the three or four major risks you see in the Global Economy<\/a> and what countries or regions do typically monitor when you consider policy. Heres the good news. You hear this all the time. That is the context of less than 2 gdp growth. Have a lot of the same high debt to gdp. They have a lot of the same issues we do. Thats year. Mexico and canada had their own issues mexico actually has very good demographics. Mexico has been through a lot over the last number of years particularly with weakness in energy and worry about our trading relationships. Their currencies have been all over the place. And they had raised their own fed funds rate multiple times to try to fight inflation. Then we go to asia and asia is a source of growth i think for the world a better demographic. Probably better Government Debt<\/a> to gdp. The biggest part of that is china. And china is the impact on the world that has changed dramatically. In the way it has grown its gonna grow this year about six and a half gdp. The reason is the way they do that they target the gdp level and then they use debt increase in their own debt to gdp. They basically had doubled that gdp. Unlikely to be sustainable when i look at Global Growth<\/a> its better thats good news except part of that been better as China Growing<\/a> 6. 5 and 6. 7 percent. And pretty competent ultimately the world is good have to use a China Growing<\/a> more slowly. We will have to get used to their gdp floating down. They are now a big percentage of Global Growth<\/a>. I think Global Growth<\/a> picture looks better except we should just get comfortable with the idea that part of that is china and i think its likely that they will need to drift lower because they are gonna need to stop increasing debt to gdp to increase it. Globalization is a source of opportunity for the United States<\/a> not a threat i think one of the keys to the future of the United States<\/a> is even doing more to integrate our companies are doing this by the way. As for the country to integrate more with the rest of the world in a sensible way so that we can grow faster. You made a big point around protectionism. Do you see a threat from that. Its a concern. He wants to make sure this good strong back for credential policy. Hes worried about first section is because again he sees the same problems i just talked about. Aging demographics. And so turning inward enclosing out is probably going to mean that we will grow more slowly at a time when because of our demographics we are going to likely grow more slowly anyhow and i think what his comment is we need to make smart trade decisions. I think the two policy areas are sources of opportunity for the United States<\/a> and a the source of the probably greater growth. In the National Debate<\/a> they are being characterized a little more as threats. I think they are being attribute attributed to those two things are much more likely going to write within the corners of the United States<\/a> with technology and by the way those trends are accelerating and accelerating in a powerful way in my judgment. Fifty to 60 per barrel. What is your outlook for the energy sector. We are heading towards Global Supply<\/a> demand balance. We spent the last couple of three years painfully trying to find it. And we found it by the u. S. Cutting its output about a mere Million Barrels<\/a> per day which is really painful while we were cutting those cuts were almost fully offset by growth and opec. We do not cut supply at all in fact we continue to grow supply in the recent we are getting into balance is because demand is growing about 1. 3 Million Barrels<\/a> per day. Now you flip and at the end of 2016 they announce that they are going to have cuts of about eightpoint 8 Million Barrels<\/a> per day. That helps support the price so the United States<\/a> they can move very quickly to about 8. 9 Million Barrels<\/a> per day. Its our judgment we will finish that. So we are now 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. And because there is a strong decline curvature you need to produce more and more to keep growing. It would not surprise me to see 45 or 50 you may have times where re break above 50. There will be a regulator and they will either be increasing supply i would guess the new norm is probably in the 45 to 50. It revolves around 50. 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> 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. I was starting to emerge. 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. 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. 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>. 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 may 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 feel strongly we should break begin the roll down to the Balance Sheet<\/a> as soon as we can. It was a hundred billion dollars back precrisis we built it up through quantitative. And you can debate the last couple. 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. 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 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. Ive been a time check. To open up to the floor for questions. If you have a question over there. 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 neck and a cure for 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 metro 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. 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 strictly low. 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. I have to be open to facing reality. 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. About getting people more participating in the workforce. You also have some great books on leadership. There are blank stares when you talk about leadership. 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. 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. We are headed for trouble. I have to be open to learning and say i was wrong. I changed my mind. Its a sign of strength not a sign of weakness. I think that is an important model for leaders today. Thank you. We are in the midst of the trumpet rally. Likely root cause is the potential for tax reform. A meat ami a more favorable business climate. The prospects for any structural reform. With the tax code or anything like that. The premise of your question. I did a lot of people would probably challenge a lot of the premises it probably has a lot more to do with very solid corporate earnings. In the fact that people expect rates to stay lower for longer which is affecting those. They see the prospect for other policy. Ever since january and has been right so far. Im not take into account we have not yet taken account to them. So heres why. Some of the policies been discussed would be very good for the economy. It is thoughtfully done maybe the pendulum has swung too far. Other things that could help tax reform underline the we would be more leveraged. Those are be positive. I think the jury is out because the consumer is so critical. Not just in that short room but over the next few years. My approach has been to basically wait to see what policies are going to be enacted. The potential policies which would be helpful. I have a feeling that if im doing that im probably not the only one taking that approach. And is making other business decisions. Youre watching booktv on cspan2. Booktv, television for serious readers. And this weekend on booktv youll hear from Harvard University<\/a> professor Danielle Allen<\/a> as she examines massing incarceration through the lens of her cousin michael who served 11 years in prison beginning at the age of 15. Shes interviewed by author wes moore on our weekly after words program. Also this weekend senator Bernie Sanders<\/a> offers his thoughts on how to bring about political change in america. Fox news contributor and pollster doug schoen gives his assessment of the trump presidency. Eric larson talks about isaac storm, a deadly hurricane that hit galveston, texas, in 1900 x. To mark the 16th anniversary of 9 11, were bringing back a program from our archives. Its from 2006, and its Lawrence Wright<\/a> discussing his pulitzer prizewinning book, the looming tower. Thats all this weekend on cspan2s booktv. Its television for serious readers. And now were kicking off this weekend with author erica wagner. She recalls the life of the builder of the brooklyn bridge. The books under the bridge series has been going on for several years now. Its a Wonderful Program<\/a> that brings together various brooklyn booksellers, and theyre allowed to program a monday in july and august. 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