• Doug Lagerstrom

Market Outlook | Winter 2020

Listening to our federal reserve chairman at his hearing before the house on February 11, 2020, you would feel great about our economy. Consider the following from Sherman pal's testimony: “The economy expansion as well into 11th year, and it's longest on record."

“Inflation has been low, and stable… Below the… 2% objective.”

“Unemployment rate was 3.6% last month and has been near century Lowe’s for more than a year.”

The “… Benefits of a strong labor market have become more widely shared.”

“We just have been rising, particularly for a lower-paying jobs.”

“Labor force participation by individuals in their prime working years is at its highest rate in more than a decade.”

According to the Wall Street Journal, “nearly 3 of 4 Americans who were newly employed in recent months came from outside the labor force…” also from the Wall Street Journal "labor force participation for those 25 to 54 has increased 83.1%, the highest rates in September 2008!" (February 10, 2020)

So, what is the cost this economic boon?

Some economist point to trumps economic policy; specifically, the corporate and personal tax cuts, the lower rate on repatriation of cash, and the reduction and regulations. Still others. To the easy money policy of the Fed.

Who’s right?

Probably both are right, but the real question asks: “what is the cost for the current economic party?”

Trumps policies: although most, if not all, economist agree that these policies are stimulated economy, most also agree it is at the long-term cost of major budget deficit (1 trillion and counting.) In fact, the deficit as a percentage of GDP has to tap each year during trumps first term, in spite of the strong economy. In other words, in exchange for the economic good times, trumps policies are potentially sacrificing the future. Vice President pence acknowledged as much when asked about the countries that.

Regarding the debt in a recent CNBC interview with Wilford Frost, vice president Pence said, “… We sharpen our pencil is on our budget… In a second term will continue to address those issues." In the meantime, the nations that is approaching 24 trillion and neither party is making our nations that an election issue. To put the $24 trillion into perspective, that's $67, 000.00+ for every man, woman and child in America.

Aside from the debt, what else are we concerned about?

The easy money from the fat, the other feeling agent for the economy has increased the feds balance sheet to unprecedented levels. Many other central banks have been experimenting with negative interest rates. Although we haven’t gone there yet, with interest rates this low, the feds seem to have very few bullets to use for the next economic recession.

Given uncertainty surrounding the coronavirus, the looming election, and the very flat yield curve (the ten-year rate has dropped.30% well the one-month rate dropped. 04% over the past month), it is unlikely the Fed will change course this year. (WSH 2/10/2020)

Election issue:

This fall our electorate will decide on whether to elect a president his focus is making the economic pie bigger, or whether the focus should be on more fairly dividing the economic pie. Bigger government programs (Medicare for all, free education, etc.…) may provide social benefits, but will also likely hurt economic growth. We will keep an eye on these developments and keep you appraised of the prospects for our economy going forward.

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