Economic Update Michigan Actuarial Society

Transcription

1 Economic Update Michigan Actuarial Society Paul Traub Senior Business Economist Federal Reserve Bank of Chicago/Detroit Branch December 5, 2018 The views expressed here are our own and do not necessarily reflect the views of the Federal Reserve Bank of Chicago, the Federal Open Market Committee (FOMC) or the Federal Reserve System.

2 Before the Federal Reserve Alexander Hamilton s, Report on a National Bank, December a National Bank is an Institution of primary importance to the prosperous administration of Finances, and would be of the greatest utility in the operations connected with the support of Public Credit In 1791, Congress created the Bank of the United States to assist the federal government in its financial transactions and to help America s financial system meet the needs of a growing economy. There were two failed attempts at establishing a national bank which highlighted the different regional views of the role of a central bank. Source: Speech by Fed Governor Jerome H. Powell, America s Central Bank: The History of the Federal Reserve, (March 28, 2017) 1

3 Why the Current Structure Exists The organization of the Fed reflects the long-standing history in America to ensure power over the nation s monetary policy and financial systems is not concentrated in the hands of a few. Monetary policy and financial matters need to be influenced by a diverse set of voices from all parts of the country and the economy. The structure of the Fed was designed to achieve this broad representation, promote a stronger financial system, and protect the nation s economy against the periodic financial damage that was frequently experienced in the 19 th and early 20 th centuries. 1 After months of hearings and debate the Federal Reserve Act was passed December 23, The United States experienced numerous financial crises in its early history with major crises in 1839, 1857, 1873, 1873, 1893 and Source: Speech by Fed Governor Jerome H. Powell, America s Central Bank: The History of the Federal Reserve, (March 28, 2017) 2

4 The Federal Reserve System Source: Board of Governors of the Federal Reserve System (2016), The Federal Reserve System: Purpose and Functions, 10 th ed. (Washington: Board of Governors), p. 4, complete.pdf. 3

5 Functions of the Federal Reserve Financial services to the public, financial institutions, U.S. government, and foreign official institutions -- a major role in the payments system Supervising and regulating banking institutions to ensure safety and soundness of the banking system and to protect credit rights of consumers Conduct monetary policy 4

6 The Dual Mandate In 1977, Congress amended The Federal Reserve Act, stating the monetary policy objectives of the Federal Reserve as: "The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates. 5

7 Goals of Monetary Policy Price stability - Since 2012, explicit 2% objective for PCE inflation - Target is for an average over medium term it is not a ceiling - Explicit statement should help anchor expectations Full employment - The appropriate employment goal may change over time for nonmonetary reasons - Seek an economy operating at its level of potential output - Current Non-Accelerating Inflation Rate of Unemployment (NAIRU) : 4.5% Balanced approach - Take balanced approach when shocks push the economy away from objectives - Takes account of lags in effects of monetary policy and other limits 6

8 Importance of Price Stability Price stability gets great emphasis Price stability improves the workings of the price system -- high and variable inflation disrupts the economy Price stability provides the environment necessary to meet all the other goals of monetary policy Price stability makes planning easier Price stability may also lower long-term interest rates by reducing uncertainty 7

9 U.S. Real GDP Change Yr./Yr % % % % % % Average Expansion '30 '34 '38 '42 '46 '50 '54 '58 '62 '66 '70 '74 '78 '82 '86 '90 '94 '98 '02 '06 '10 ' Years 7.9 Years 8

10 Sustainable Growth The Federal Reserve can t make the economy grow faster than its potential in the long run Trying to over-stimulate the economy results in increasing inflation that contributes to short boom-bust cycles Steady, sustainable growth is the key to improved living standards 9

11 Tools of Monetary Policy Reserve requirements: funds that depository institutions must hold in reserve against deposits Discount Rate: the interest rate charged to commercial banks when they borrow reserves from a Federal Reserve Bank o Banks who are in better financial shape can borrow at the Primary Credit rate (currently at 100 basis points above the Fed Funds rate) and those that are not as solid can borrow at the Secondary Credit rate (currently 150 basis points above the Fed Funds rate) Open market operations: influencing the level of reserves by buying and selling U.S. government securities in the open market -- done by trading desk at the New York Fed o Currently the desk operates by targeting the interest rate on Federal Funds 10

12 Importance of an Independent Fed Policymakers, academics, and other informed observers around the world agree that the goals of monetary policy should be established by the political authorities, but the conduct of monetary policy should be free from political influence.* Achieving monetary goals can at times take substantial time, this requires that monetary policy makers take a longer-term perspective. In contrast, short-term political influences may cause pressure to over stimulate the economy resulting in output and employment gains that exceed the economy s underlying potential. Additionally, a government that controls the central bank could abuse the central bank s money-creation powers to help finance government budget deficits which would inevitably lead to high inflation and interest rates and a volatile economy. In short, monetary policy interference can generate boom-bust cycles with high inflation and less stable economic activity. * Source: Board of Governors of the Federal Reserve 11

13 Gross Domestic Product

14 Real GDP by Sector Billions Chained $2012, of Total Real GDP Personal Consumption Gross Private Domestic Investment 's 70's 80's 90's 2000's 10's -1.0 Net Exports 's 70's 80's 90's 2000's 10's Source: U.S. Bureau of Economic Analysis 's 70's 80's 90's 2000's 10's 33.2 Government C&I 's 70's 80's 90's 2000's 10's Note: Sector percentages may not sum to due to rounding.

15 Main Economic Indicators Year-over-year Comparison YTD GDP Annual Growth Rate 1 1.9% 2.5% 3.3% Unemployment Rate 2 4.9% 4.4% 3.9% Nonfarm Job Growth Private Wage Growth 4 2.6% 2.6% 2.8% PCE Inflation Yr. / Yr % 1.6% 2.1% 1. Year-over-year & 2017 Q4/Q4, 2018 Q2/Q2 2. Annual Average YTD 3. Average Monthly Job Growth in Thousands- SA 4. Change Year-over-year Annual Average YTD Source: U.S. Bureau of Economic Analysis, Census Bureau and Bureau of Labor Statistics 14

16 U.S. Real GDP Q Contribution to Change - Q/Q at SAAR, $ Q1 '16 Q2 Q3 Q4 Q1 '17 Q2 Q3 Q4 Q1 '18 Q2 Q3 PCE Private Investment Net Exports Government GDP Contribution 2.5% 2.5% -1.9% 0.4% 3.5% Note: Contributions by sector may not sum to total due to rounding errors. Source: U.S. Bureau of Economic Analysis. 15

17 Real Personal Consumption Expenditures Billions Chained $2012, % Change Q/Q at SAAR $ Billions 13,500 13,000 12,500 12,000 Q $12, ,500 11,000 10,500 10,000 9,500 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 3.6% Source: U.S. Bureau of Economic Analysis 16

18 Real Retail & Food Service Sales Millions Chained $2012, Change Yr./Yr Jan Feb Mar Apr May Jun Jul Aug Sep Oct Source: Author s calculations using Federal Reserve Bank of St. Louis data. 17

19 Real Personal Consumption Expenditures Billions Chained $2012, Index Q4 07 = 100 Index Q '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Durables Nondurables Services Source: Author s calculations using data from the BEA 18

20 Real Gross Private Domestic Investment Billions Chained $2012, % Change Q/Q at SAAR $ Billions 3,750 3,500 3,250 3,000 2,750 2,500 2,250 2,000 1,750 1,500 1,250 1,000 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Q $3, % Source: U.S. Bureau of Economic Analysis December 5, Federal Reserve Bank of Chicago

21 U.S. Real Private Domestic Investment Q Contribution to Change - Q/Q at SAAR, $ Q1 '16 Q2 Q3 Q4 Q1 '17 Q2 Q3 Q4 Q1 '18 Q2 Q3 Inventories grew by $86.6 billion, the largest quarterly increase since Q3 15. Nonresidential Residential Inventory Change RPDI Q % -0.2% 2.1% 2.0% Note: Contributions by sector may not sum to total due to rounding errors. Source: U.S. Bureau of Economic Analysis. 20

22 Real Domestic Fixed Investment Billions Chained $2012, Index 2005 = 100 Index Q '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Fixed Investment Nonresidential Residential Source: U.S. Bureau of Economic Analysis 21

23 ISM Purchasing Managers Indexes Manufacturing & Nonmanufacturing, SA - Greater than 50 = Expansion Oct / Nov, A J O 2018 A J O Manufacturing Nonmanufacturing Source: Institute for Supply Management and Haver Analytics. 22

24 Industrial Production & Hours Worked Industrial Production & All Employees Goods Producing Index, 2007 = 100 Index Oct (40.3) Index '07 '09 '11 '13 '15 '17 Industrial Production (LHA) AverageWeekly Hours (RHA) 97.5 Note: Actual values in parentheses are in thousands. Source: Board of Governors of the Federal Reserve System. 23

25 New Private Housing Housing Starts and Building Permits Index, 2005 = 100 Index Oct (1,228) 58.6 (1,265) '04 '06 '08 '10 '12 '14 '16 '18 Starts Permits Note: Actual values in parentheses are in thousands. Source: U.S. Census Bureau & Bureau of Labor Statistics. 24

26 Mortgage Rates 15 Year and 30 Year Fixed & 5/1 Adjustable Dec 3, % 4.21% 4.02% J F M A M J J A S O 15 Year Fixed 30 Year Fixed 5/1 Adjustable Source: New York Times and Haver Analytics 25

27 New Private Housing Housing Starts and Building Permits Index, 2005 = 100 Index Oct (1,228) 58.5 (1,263) '04 '06 '08 '10 '12 '14 '16 '18 Starts Permits Note: Actual values in parentheses are in thousands. Source: U.S. Census Bureau & Bureau of Labor Statistics. 26

28 Mortgage Rates 15 Year and 30 Year Fixed & 5/1 Adjustable Nov 12, % 4.47% 4.13% J F M A M J J A S O 15 Year Fixed 30 Year Fixed 5/1 Adjustable Source: New York Times and Haver Analytics 27

29 Real Imports and Exports Billions Chained $2012, Index 2012 = 100 Index '12 '13 '14 '15 '16 '17 '18 Net Exports (RHA) Exports (LHA) Imports (LHA) $Billions Q3 18 $ $ $945.8 $400 $200 $0 -$200 -$400 -$600 -$800 -$1,000 -$1,200 Source: U.S. Bureau of Economic Analysis 28

30 Negative Effects of Tariffs Increase prices and lower output Tariffs on intermediate goods can lead to higher prices and less output of final goods Lead to retaliation (trade wars) Hurt lower and middle income consumers more than the wealthy Result in ineffective allocation of resources and protect inefficient domestic industries Lead to unintended consequences Smoot-Hawley Act of

31 Negative Effects of Tariffs Increase prices and lower output Tariffs on intermediate goods can lead to higher prices and less output of final goods Can lead to retaliation (trade wars) Hurt lower and middle income consumers more than the wealthy Result in ineffective allocation of resources and protect inefficient domestic industries Can lead to unintended consequences Smoot-Hawley Tariff Act of

32 Trade and Tariffs Impact on Intermediate Goods Production (Steel) Price Supply World Price With Tariffs World Price Increased Output 0 Q1 Q2 Quantity 31

33 Trade and Tariffs Impact on Final Goods Production (i.e. Automobiles) Price Marginal Cost = Marginal Revenue Marginal Cost with Tariffs Marginal Revenue (MR) Marginal Cost Without Tariffs P2 P1 Decreased Output 0 Q1 Q2 Quantity 32

34 Real Government Consumption & Investment Billions Chained $2012, % Change Q/Q at SAAR $ Billions 3,400 3,350 3,300 3,250 3,200 3,150 3,100 3,050 Q3 18 $3, % ,000 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 ' Source: U.S. Bureau of Economic Analysis 33

35 Average Tax Rates Personal and Corporate Q % 12.0% 0.0 '59 '64 '69 '74 '79 '84 '89 '94 '99 '04 '09 '14 Personal Corporate Notes: Corporate Tax Rate = (Corporate Profits Before Taxes / Corporate Profits After Taxes) 1, both without IVA & CCAdj. Personal Tax Rate = Personal Current Taxes / Personal Income (NIPA). Source: Author s calculations using U.S. Bureau of Economic Analysis data. 34

36 Federal Expenditures and Receipts Actual and Projections (percent of GDP) Expenditure: BBA Increases Extended* Expenditure: Current Baseline* Expenditure: Without BBA Increase in Caps* Actual (Expenditures) Actual (Revenues) Revenue: Without TCJA* Revenue: Current Baseline* '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24 '26 * Calculations based on the CBO's April 2018 projections of Federal outlays, receipts, and gross domestic product. 35

37 Federal Debt and Interest on Debt Billions of Dollars Fiscal Year (October 1 September 30) $Billions $400.0 $236.2 $200.0 Federal Surplus or Deficit [-] $0.0 -$200.0 ($160.7) -$ $ $800.0 ($412.7) ($438.5) ($779.0) -$1, $1, $1,400.0 ($1,412.7) -$1,600.0 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 $Billions $350.0 Interest Payments on Federal Debt $324.7 $300.0 $250.0 $222.9 $237.1 $230.0 $223.2 $200.0 $186.9 $160.2 $150.0 $100.0 $50.0 $0.0 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Source: Office of Management and Budget. 36

38 Debt Projections in Historical Context 37

39 Employment, Productivity, and Output Nonfarm Business Sector Change Yr./Yr % 2.2% '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Employment Output/Person Output Source: Author s calculations using U.S. Bureau of Labor Statistics data. 38

40 Employment, Productivity, and GDP Growth Change Yr./Yr. Employment Change Yr./Yr Productivity Change Yr./Yr '60's '70's '80's '90's '00's '10's 4.5 GDP Change Yr./Yr '60's '70's '80's '90's '00's '10's 4.4 CBO Potential Change Yr./Yr '60's '70's '80's '90's '00's '10's '60's '70's '80's '90's '00's '10's '20's Source: Author s Calculations using BEA, BLS, and Fed data. 39

41 U.S. Real GDP Recession Recoveries Billions Chained $2012 Index Recession Peak = Q2 '60 Q4 '73 Q1 '80 Q3 '90 Q1 '01 Q4 '07 CBO Potential Growth Rate: 4.4% 3.3% 3.2% 3.1% 2.5% 1.5% Source: Author s calculations using U.S. Bureau of Labor Statistics data. 40

42 U.S. Real GDP Actual and Potential Billions Chained $2012 and H/L than Potential $Billions 20,000 19,000 18,000 17,000 16,000 15, ,000 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Gap (Right) Actual (Left) Blue Chip (Left) Potential (Left) -6.0 Source: Author s calculations using Bureau of Economic Analysis and the U.S. Congressional Budget Office and Blue Chip Consensus forecast data. 41

43 U.S. Real GDP September, 2018 Blue Chip Forecast Change Billions of Chained $ '14 '15 '16 '17 '18 '19 Actual Q/Q (SAAR) Fcst Q/Q (SAAR) Actual (Y/Y) Fcst (Y/Y) Source: BEA and November 2018 Blue Chip Economic Indicators 42

44 U.S. Consumer 43

45 Real Disposable Income Billions of Chained 2012 Dollars - Change Yr./Yr. 6.0 Dec % Oct % Source: Bureau of Economic Analysis. 44

46 Household Net Worth Trillions of Current Dollars & Annual Average $Trillions $120.0 $ % $ % 20.0% $ % 15.0% $60.0 $ % $ % $ % Real Estate Equity - % of Net Worth Net Worth 45

47 Total Consumer Debt by Composition Trillions of Dollars Trillions $8.066 $ $ $ Q2 18 $0.390 $1.405 $0.829 $1.238 $ $8, '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Mortgage HE Revolving Auto Loan Credit Card Student Loan Other Total Source: Federal Reserve Bank of New York and Equifax 46

48 Interest Payments As a of Disposable Personal Income '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Interest Payments (LHA) Prime Rate (RHA) Sep % 2.20% Source: Federal Reserve Bank - Board of Governors 47

49 Consumer Sentiment University of Michigan Index Nov '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Source: Thomson Reuters / University of Michigan December 5, 2018 Federal Reserve Bank of Chicago 48

50 Current Household Financial Situation Compared to a Year Ago Index 2016 = 100 Index Nov Income Higher Asset Higher Note: Relative situation is calculated as the number of respondents answering that their income and asset to debt ration is better than a year ago minus those responding that it is worse than a year ago. Source: University of Michigan Consumer Sentiment 49

51 Stock Market New York Stock Exchange, Index January 2018 = 100 Index Nov 20, J F M A M J J A S O N Composite Energy Health Care Finance Source: Wall Street Journal and Haver Analytics. 50

52 Automotive Industry

53 U.S. Light Vehicle Sales S.A.A.R Millions of Units Millions Cash for Clunkers Aug YTD 17.1 Nov SAAR 6.0 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 SAAR Annual Average Source: Ward s Automotive and BEA 52

54 Light Vehicle Incentives & Transaction Price of Transaction Price & Change Yr./Yr. - SA 14.0 Incentives - of Transaction Price 6.0 Transaction Price After Incentives Nov % Nov % Est '15 '16 '17 ' '15 '16 '17 '18 Source: Author s calculations using J.D. Power and FOMC Board of Governors 53

55 Oil and New Car Loan Rate Current Dollars / bbl. and Dollars $90.0 $85.0 $80.0 $75.0 Oil WTI Domestic - $/bbl Dec 3, New Car Loan Rate Commercial Banks Q % 4.96% $ $65.0 $60.0 $55.0 $50.0 $61.92 $ $45.0 J F M A M J J A S O WTI Brent 3.8 '14 Q1 '15 Q1 '16 Q1 '17 Q1 '18 Q1 48 Mo. Loan 60 Mo. Loan Source: EIA and Federal Reserve Board of Govenors. 54

56 U.S. Light Vehicle Industry Trend Millions of Units Calendar year Millions Source: Ward s Automotive, Blue Chip Consensus, and Author. 55

57 U.S. Light Vehicle Pent-Up Demand Millions of Units Millions K '80 '84 '88 '92 '96 '00 '04 '08 '12 '16 '20 Source: Author s calculations using Ward s Automotive, Blue Chip Consensus, and Author s data. 56

58 Detroit Three Market Share of Light Vehicle Sales Calendar year '02 '04 '06 ' '12 '14 '16 '18 GM Ford FCG Source: Author s calculations using Ward s Automotive, Blue Chip Consensus, and Author s data. 57

59 Car / Light Truck Capacity Utilization & Mix of Light Vehicle Capacity & Sales Calendar year '06 '07 '08 ' '11 '12 '13 '14 '15 '16 ' Nov YTD Car Utilization (LHA) Lt Trk Utilization (LHA) Note: Capacity utilization based on production weighted straight time capacity. Source: Author s calculations using Ward s Automotive, Blue Chip Consensus, and Author s data. 58

60 Monetary Policy

61 F.O.M.C Statement November 8, Information received since the F.O.M.C. met in September indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. 2. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. 3. Household spending and business fixed investment has grown strongly. 4. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectation are little changed, on balance. 5. Risks to economic outlook appear roughly balanced. 60

62 Unemployment Rate of Labor Force Unemployed Oct % 3.7% 3.5% 3.5% 2.0 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 Actual FOMC Projections CBO NAIRU Sources: U.S. Department of Labor Job Openings and Labor Turnover Survey, FOMC Projections September 26,

63 Labor Force Labor Force Growth & Participation Rate 2.50 Yr./Yr. Change 12MMA 70.0 Participation Rate Oct % '02 '04 '06 '08 '10 '12 '14 '16 ' '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Oct % Sources: U.S. Department of Labor Job Openings and Labor Turnover Survey, U.S. Employment and Training Administration 62

64 U.S. Nonfarm Payrolls Monthly and Annual Average Job Change In Thousands Thousands YTD Oct Monthly Actual Annual Average Source: U.S. Department of Labor: Bureau of Labor Statistics 63

65 Labor Conditions Job Openings and Initial Claims Ratio 1.40 Job Openings (JOLTS) / Unemployed 0.60 Monthly Average Initial Claims Divided by Nonfarm Payroll 1.20 Sep Oct % 0.00 '01 '03 '05 '07 '09 '11 '13 '15 ' '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Sources: U.S. Department of Labor Job Openings and Labor Turnover Survey, U.S. Employment and Training Administration 64

66 Average Weekly Hours Worked Private Workers, SA - 12 MMA, Index 2007 = 100 Index Oct Hrs Hrs Hrs '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Total Private Goods Producing Service Providing Sources: U.S. Bureau of Labor Statistics 65

67 Average Hourly Earnings Private Employees Change Year / Year % = 1.5 Productivity Growth + 2% Inflation Nov % 3.1% '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 All Employees Production & Nonsupervisory Source: U.S. Department of Labor: Bureau of Labor Statistics 66

68 PCE Inflation All Items & Core, 12-Month Change Oct % % '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 Total Core FOMC Projections* FOMC Long-run Target 2.0% 2.1% 2.1% * Midpoint of the central tendency of forecasts made by the FOMC participants as of June 13, 2018 Source: U.S. Department of Labor: Bureau of Labor Statistics, Bureau of Economic Analysis and the Federal Reserve 67

69 Inflation Expectations 1-5 Year and 5-10 Year Inflation Expectations 6.0 UM Consumer s Inflation Expectations 4.0 TIPS Inflation Compensation Nov % 2.0 Nov 16, % % '06 '07 '08 '08 '09 '10 '12 '13 '14 '15 '16 '17 '18 1 Year & 5 Years Out 0.0 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 ' Year Rate Source: Survey of Consumers University of Michigan and Federal Reserve Board 68

70 Yield Curve 10 Year 1 Year Treasuries in Basis Points Nov 30, bps 35 bps 270 bps '12 '13 '14 '15 '16 '17 '18 10 Yr - 1 Yr T-Bill Spread 1 Year Treasury 10 Year Treasury Source: Board of Governors Federal Reserve System 69

71 Yield Curve 1 Month to 30 Year Treasury - Constant Maturity Rate (0.16) (0.42) (0.34) 1 Mo 3 Mo 6 Mo 1 Yr 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr Dec 3, H/(L) than 1 Yr. Dec 3, 2018 Dec 4, 2017 Source: Board of Governors Federal Reserve System 70

72 Yield Curve 10 Year 1 Year Treasuries in Basis Points Bps Nov 30, Average for Quarter Q4 '18 Q1 19 Q2 '19 Q3 '19 Q4 '19 Q1 '20 Actual Blue Chip Forecast Source: Federal Reserve System, Board of Governors and Blue Chip Financial Forecast, November

73 Appropriate pace of policy firming Fed Funds Rate Year End Projections Current Target 2.00% to 2.25% Longer-run Source: Federal Reserve - F.O.M.C. participants, September 26,

74 Target Federal Funds Rate Long Run Projections % 4.0% % 3.50% 3.00% 2.50% 2.00 Sep '12 Sep '13 Sep '14 Sep '15 Sep '16 Sep '17 Sep '18 Low Median High Source: Federal Reserve - F.O.M.C. participants projections. 73

75 Thank You!