In remarks to the academic and business community at the University of Bridgeport, New York Federal Reserve President and CEO William Dudley delivered a tempered assessment of the current state and future outlook of the national and regional economies.
Focusing half of his speech on Fairfield County, Dudley honed in on the county”™s sluggish growth, particularly in comparison with New York City.
“Only recently has employment approached its pre-recession levels, and it is still well shy of where it was back in 2000,” he said.
The housing market has yet to fully recovery in regard to housing prices as well as the amount of homes in foreclosure and up for foreclosure sale while New York has experienced an “exceptionally strong” recovery, he said.
Dudley said the reason for the disparity is twofold.
While Both New York and Fairfield County have had slow employment growth in the financial sector throughout the Great Recession recovery, New York has rebounded with strong employment in the technology, construction, retail and advertising industries, whereas Fairfield County has had to contend with losses from the relocations of RBS, UBS and the impending departure of General Electric”™s Fairfield headquarters.
However, he emphasized the codependent relationship between the county and New York as a hopeful sign of the county”™s future growth.
“Over the past year, New York City”™s economy has, on average, added more than twice as many jobs each month as the total expected job losses from the relocations of GE, UBS and RBS,” he said. “While a majority of these jobs may not have been in high-paying-industry sectors, some of them were ”“ especially in technology-related industries.”
The largely suburban county is also being hit by a change in housing preferences fueling a renewed desire for city living, particularly among the millennial and younger generations, which may be a long-term trend, he said.
The county”™s future may be in its cities, which have seen notably high population gains. Bridgeport”™s population has grown by nearly 6 percent since 2000, while Stamford has burgeoned, recently surpassing New Haven as the second largest city in the state with nearly a 10 percent population increase since 2000.
With investments in workforce training and quality of life improvements such as improved mass transit and commercial development, Bridgeport”™s Steelpointe Harbor and Stamford”™s Harbor Point developments for example, the county can foster economic growth in the future, he said.
“The challenge for Fairfield County is to make the urban areas you have as attractive as possible.
“Modernizing mass transit in the region makes a lot of sense. It doesn”™t feel like we are running on a state-of-the-art mass transit system.”
Big Perspective
On a national level, Dudley said he expects real gross domestic product growth of about 2 percent in 2016, “slightly below the average pace of growth in this expansion, but a bit above my estimate of the potential growth of the U.S. economy.”
If his prediction holds true, he estimates national unemployment levels could drop to 4.75 percent from the current 5 percent unemployment rate. Despite the positive outlook, he cautions that the normal uncertainty of any Federal Reserve forecast is “somewhat greater than usual.”
“Although the downside risks have diminished since earlier in the year, I still judge the balance of risks to my inflation and growth outlooks to be tilted slightly to the downside,” he said. “The factors behind the financial turbulence we saw earlier this year do not yet appear to be fully resolved.”
In addition to his predictions, Dudley”™s speech included a lengthy question and answer session as long as the speech itself, with a particular focus on trending topics such as the minimum wage and Wall Street regulation.
In response to University of Bridgeport professor Frederick Harmon”™s question regarding the effect of the minimum wage increase on the Federal Reserve”™s planning, Dudley said the impact would not have huge consequences on a macro scale due to the slow, state-by-state adoption of minimum wage increases and the relatively small amount of people who earn at or close to the minimum wage.
“To the extent that you raise the minimum wage, and that raises people”™s wages, that will lead to a little bit faster wage growth. That is actually not a bad thing in terms of the Federal Reserve”™s objectives,” he said.
“Wage inflation has actually been a little bit lower relative to what is consistent with our 2 percent inflation objective.”
On a personal note, Dudley said he would like a single debate about indexing minimum wage to the median wage rather than the cyclical political debates that have been the status quo for decades.
“Businesses would be able to plan what their minimum wage would likely evolve to over time,” he said. “Workers would have better protection that their minimum wages wouldn”™t go up and down in real terms depending on whether the minimum wage was stuck at one level for many years and then raised a bunch all at once.”
In regard to regulating Wall Street, “I certainly don”™t think we have done too much,” he said.
In particular, he said it was critical to end the too-big-to-fail mantra that saved the large banking institutions during the financial crises.
“The fact that some firms had to be rescued during the financial crisis to prevent the financial system from collapsing was a terribly unfair thing,” he said. “We have to make it so that any firm regardless of its size can actually fail without it threatening to take down the entire financial system.”
He said considerable progress has been made through increased regulation to prevent the probability of large institutional failures, but more work was needed to prepare should a failure actually happen.
“Sometime in the future there will be a crisis where some large financial firm will have done something really stupid and have gotten themselves in trouble. And we want at that moment in time to be very confident that we can let that firm fail because that”™s the way it should work,” he said.
He noted that large firms are currently working on resolution plans to manage failure scenarios without crashing the economy, though his statements were made prior to the recent announcement by federal regulators that five of the country”™s largest banks, including Bank of America, JPMorgan Chase and Wells Fargo, are wholly unprepared to safely dismantle should they fail.
“In my opinion, we shouldn”™t stop working on this until we are confident that we can say a large firm can fail,” he said. “I am really committed to ending too big to fail and it is really important not to declare a victory prematurely. It is one thing to say we got it. It is another thing when you are actually in the crisis to act on that basis. So I think it is something we need to keep working on.”
