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“Prospects for the Economy and Inflation, and What It Means for the Fed and Financial Markets”

Economist Larry Kantor explained how the US economy fared during the Covid pandemic and rebounded strongly as a result of government intervention.

By Bob Giaquinto

At the June 19th meeting of the Retired Men’s Association Bob Rimmer introduced Larry Kantor, an economist whose career work has included the Federal Reserve Board, managing director at Barclays, a hedge fund, TV appearances and more. Kantor noted that after the Federal Reserve raised interest rates from the 0% to 5.25% between March 2022 and July 2023 to combat high inflation, a recession was widely anticipated. However, the economy defied expectations by accelerating, growing over 4% in the second half of 2023. Inflation declined to the federal 2% target during that period.

The combination of explosive demand and constricted supply caused goods price inflation to spike to a 40 year high. As the impact of Covid faded, goods demand declined, and supply chains healed allowing goods price inflation to plummet. However, services inflation then rose to around 4 to 5%.
The historic, smart government stimulus of $5 trillion enabled the USA to rebound. Remember in early 2020, unemployment went from 3.5% to 15% in two months. However, due to the Covid stimulus, the economy rebounded strongly; job openings soared to 12 million while the normal number is seven million. Part of this was due to a labor shortage. During Covid about one million residents died, which included 500,000 workers. Many baby boomers also retired, some enticed by buyouts.

The infusion of dollars into businesses and households saved the country from recession. Looking ahead, Kantor expects economic normalization in 2024. Growth should slow to 2 to 2.5% as the labor market cools and excess household savings get diminished. Inflation will settle in the 3 to 4% range which is above the Fed’s 2% target but not out of control. He foresees the Fed tolerating this modestly higher inflation range if it proves relatively stable. One or two 1/4 % rate cuts may occur later this year. While falling short of the ultra-low inflation and interest rates seen pre-Covid, he argues the economic environment has fundamentally shifted from that period. He cites factors like increased protectionism, reshoring of production and more domestic focus on supply chain resilience as catalysts pushing inflation and interest rates structurally higher versus 2010 to 2019 levels.

On broader issues, Kantor expressed concern over the rising income equality in America creating social instability. The tech boom minted enormous wealth at the very top income tier. Policies like the expanded child tax credit temporarily reduced inequality during Covid, but they have since expired.

He admitted the border is a mess but advocated for higher legal immigration levels to alleviate worker shortages and sustain economic growth as baby boomers retire and birth rates decline below population maintenance levels. The birth rate is now 1.62 and to maintain the population, it must rise to 2.1 per woman of childbearing age. He acknowledged climate change is a significant, long-term economic threat, likely to displace populations, disrupt supply chains and impose substantial recovery/rebuilding costs going forward.

He also said,
1. Increased tariffs cause an increase in inflation but do protect some jobs.
2. There is no sign of recession in sight.
3. He sees US Treasury Bonds yielding 4 to 5.5% while stocks are fairly priced.
4. The USA has by far the largest economy in the world.
5. Our stable dollar will stay the dominant currency in the world for the foreseeable future.
6. There is a risk the hyped-up AI bubble may eventually burst.
7. USA excellence in the world financial markets is due to our tech domination.
8. The deficit, which was 27% of GDP during WW II, 10% in the financial crisis, 15% in 2020, and 13% in 2021, is now 6%. The deficit should be addressed rather than leaving it to others.

The talk can be viewed by going to the RMA website at https://greenwichrma.org, and clicking on “Speakers.”

The RMA’s upcoming presentation, “100 Things to Do in Connecticut Before You Die,” by Anastasia Mills Healy, is scheduled for 11 AM on Wednesday, July 3, 2024. Did you know that in Connecticut you can walk among life-size dinosaurs, drive a race car, admire stunning private gardens, and take a sightseeing cruise through a picturesque archipelago? If you’ve ever wondered “What should I do today?” come to this presentation based on the new book 100 Things to Do in Connecticut Before You Die. Whether you’re an antiques hunter or a baseball lover, jazz fan or history buff, seven or 87, you’ll discover fantastic places and experiences close to home.

A former editor at Condé Nast Traveler, Fodor’s, and Travel Agent, Anastasia Mills Healy is a Greenwich-based writer and editor who has covered Connecticut for Time Out, Lonely Planet, and Business Insider. In addition to 100 Things to Do in Connecticut Before You Die, Stasha is also the author of Secret Connecticut: A Guide to the Weird, Wonderful, and Obscure. She loves shining a light on the state’s fabulous places and fascinating stories.

To stream the presentation by Anastasia Mills Healy at 11 AM on Wednesday, July 3, click on https://bit.ly/30IBj21. This presentation will also be available on local public access TV channels, Verizon FIOS channel 24 and Optimum (Cablevision) channel 79.

Note: The views expressed in these presentations are those of the speakers. They are not intended to represent the views of the RMA or its members.

RMA speaker presentations are presented as a community service at no cost to in-person or Zoom attendees, regardless of gender. Any member of the public who would like to receive a weekly email announcement of future speakers should send a request to members@greenwichrma.org. The RMA urges all eligible individuals to consider becoming a member of our great organization, and thereby enjoy all the available fellowship, volunteer, and community service opportunities which the RMA offers to its members. For further information, go to https://greenwichrma.org/, or contact members@greenwichrma.org.

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