Just the Facts

Five Facts on the Greatest Threats to the U.S. Economy

By No Labels
August 31, 2018 | Blog

This past weekend central bankers from around the world met in Jackson Hole, WY to discuss the global economic picture.  While the U.S. economy and other economies around the world have enjoyed recent periods of growth, growing trade disputes and other threats have made bankers and global economists nervous. Here are five facts on the event and the economy:

The U.S. economy is currently enjoying one of the longest periods of growth in its history

The U.S. economy has been trending upwards since March 2009.  This equates to almost 3,500 days of steady growth, a mark that many economists and pundits have called the longest bull market in American history.  While this milestone has been the subject of some debate, it does not change the fact that many important benchmarks of economic strength are overwhelmingly positive at the moment, including the unemployment rate, which is currently under 4%, and the S&P 500, which currently sit at record highs.

This past weekend bankers from around the world congregated in Jackson Hole, WY for the annual Kansas City Federal Reserve Bank symposium

Every year the Federal Reserve Bank of Kansas City – one of 12 satellite branches of the country’s central bank — hosts the symposium to bring central bankers from around the globe together to discuss the world’s most pressing economic challenges.  As with all things, strong market growth won’t last forever, and this year’s symposium — “Changing Market Structure and Implications for Monetary Policy” —touched on how central banks should handle this reality.

Bankers view ongoing global trade disputes as a serious threat to the current level of prosperity 

While President Trump was never mentioned by name, many central bankers were outspoken in their opposition to his trade policies.  Over the past several months, President Trump has imposed tariffs on tens of billions of dollars worth of goods from countries around the world.  Trade is a major driver of economic growth in many countries, and tariffs have strained important trading relationships. While the Trump administration maintains that the tariffs will benefit American manufacturers in the long run, many of the bankers held different opinions. Agustin Carstens, general manager of the Bank for International Settlements, which functions as a central bank for the world’s central banks, said, “It’s paradoxical that the United States is starting to put obstacles in the road at a time when its economy is firing on all cylinders.”

Bankers also expressed concern about political interference in the responsibilities of central banks

As economies around the world grow, many central banks are beginning to raise interest rates and withdraw other stimulus measures.  Often these moves are unpopular with the general public.  However, bankers argue these steps are necessary to keep economies stable, prolong growth rates, and limit periods of economic decline.  Carstens pointed to countries such as Argentina and Turkey, which have faced serious economic issues, as examples of situations in which central banks succumbed to public and political pressure.  In recent weeks, President Trump has criticized Federal Reserve Chairman Jerome Powell for his plans to increase interest rates.  This marked the end of a 25-year period in which U.S. presidents have refrained from making public statements on monetary policy.

Despite these issues many investors are confident that market growth will continue

Ten years of growth often makes investors nervous that the end of a bull market is approaching.. But some investors are arguing that there is still room for significant growth.  J.P. Morgan Chase CEO Jamie Dimon recently stated that the current bull market could “actually go for two or three more years.”  He cautioned against examining the length of growth alone and is interested in the economic underpinnings that are fueling this growth. As Ed Yardeni, a financial researcher, stated, “Bull markets don’t die of old age. What kills them is recessions … I think we’re going to have a long expansion. I think the bull market continues.”

 

 

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