2019 College Fed Challenge, Pace University | Summary and Q&A

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November 27, 2019
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Federal Reserve
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2019 College Fed Challenge, Pace University

TL;DR

The Pace University team presents an analysis of the U.S. economy's current state, discussing factors such as GDP growth, inflation, labor market, and financial stability. They recommend maintaining the current interest rate range but implementing a standing repo facility and temporary price level targeting.

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Key Insights

  • 🐢 GDP growth has slowed due to trade policy uncertainty and declining nonresidential fixed investment.
  • 💪 Consumption remains strong, supported by household income and consumer sentiment.
  • 😘 The labor market is robust, with strong job growth and low unemployment, but wages have not translated into higher inflation.
  • 🧑‍🏭 Inflation is below the 2% target but may be influenced by factors such as increased price discovery and globalization.
  • 💗 Financial stability is a concern due to high asset valuations and growing business debt.

Transcript

Transcript of Pace University's College Fed Challenge Finals Presentation November 27, 2019 JOSEPH DRENNAN: Hi, I'm Joseph Drennan. MARISSA KLEINBAUER: My name is Marissa Kleinbauer. SCARLETT BEKUS: I'm Scarlett Bekus. DYLAN SEALS: I'm Dylan Seals. SEAN FREDA: I'm Sean Freda. ANTULIO BOMFIM: Good morning and welcome. I'm Antulio Bomfim. I'm a Senio... Read More

Questions & Answers

Q: How has GDP growth been affected by trade policy uncertainty?

Trade policy uncertainty has caused a decline in nonresidential fixed investment, impacting GDP growth. The IMF reports global growth has slowed to 3%, reducing demand for U.S. exports.

Q: Why has inflation remained below the 2% target, despite a strong labor market?

Factors such as increased price discovery through e-commerce and globalization may be suppressing inflation. The relationship between wages and inflation has also been affected by changes in the Phillips curve, putting more weight on inflation expectations.

Q: How has the labor market performed in the current economic expansion?

The labor market is strong, with nonfarm payrolls averaging 167,000 new jobs per month. The unemployment rate is at a 50-year low of 3.6%, and wages have been growing in line with productivity.

Q: What are the risks to financial stability mentioned in the analysis?

High asset valuations and growing business debt pose risks to financial stability. The team recommends monitoring these risks and implementing a standing repo facility to improve control over the federal funds rate.

Summary & Key Takeaways

  • GDP growth has dropped to 2% and faces headwinds from trade policy uncertainty and slowing global growth. However, consumption remains strong, supported by household income and strong consumer sentiment. Housing investment has also been supported by rate cuts.

  • The labor market is strong, with nonfarm payrolls averaging 167,000 new jobs per month and unemployment at a 50-year low. Wages are growing but have not translated into higher inflation.

  • Inflation remains below the 2% target, potentially due to factors such as globalization and increased price discovery through e-commerce.

  • Financial stability is a concern, with moderately high asset valuations and high business debt. The Federal Reserve should implement a standing repo facility to improve control over the federal funds rate.

  • The team recommends maintaining the current interest rate range and implementing temporary price level targeting to stimulate the economy during the zero lower bound. They also suggest communicating a commitment to average 2% inflation over a specified period.

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