It's really my pleasure to introduce back on the NAPFA stage Dr. LeVon Henry. I think this is your third or fourth NAPFA session, so I think of it as back by popular demand. I'll just read a little bit about Dr. Henry, who currently serves as a senior policy analyst in the Banking and Regulatory Policy Group at the Federal Deposit Insurance Corporation, FDIC. As I've been talking with him over the months, I'm like, is it busy there? In his role, he assists in the interpretation, analysis, proposal, and drafting of policy guidelines, existing and proposed statutes and regulations and studies, including the Federal Deposit Insurance Act, FDIC rules and regulations, and National Bank Act, and other relevant depository institution law. From 2019 to 2021, Dr. Henry served on detail at the FDIC, or from the FDIC, as a senior economist on the Council of Economic Advisors, the CEA, in the executive office of the President in the White House. As a member of the CEA, he was responsible for analyzing economic policy issues related to banking, education, and housing policy. LeVon holds his PhD from Harvard University in business economics and his undergraduate in financial economics at Rockhurst University in his hometown of Kansas City. We were going to wear an Eagles hat and a Kansas City hat, but we figured it's too soon for me. He's here today to discuss the status and outlook of the U.S. economy and monetary policy while incorporating financial planning considerations for potential client groups. I think you'll find his remarks really interesting and ones that you can take back to clients who look a lot like people you work with. Dr. Henry. Thank you. Thank you, LeVon. Okay. Why don't we get started, because we've got a lot to talk about today, but let me first begin by saying thank you, not just to my good friend Dave O'Brien and to the leadership of NAFTA, who I've become very close with over the years, but specifically to you, because I know you were so eager to wake up early this morning to go listen to some boring government economist talk about numbers and facts and statistics. Most people don't like that, but I'm a geek, so that's what I do. My friends, we are going to talk about the current status and outlook of the U.S. economy and the monetary policy situation affecting our move down in inflation. One thing I always like to do, and I mean this sincerely, is to have a dialogue with you, not to speak at you, not to say this is the government's position, because this is not. This is a presentation of facts whose interpretation is always left to the individual. What I really mean there is, please, speak up. I will tell you, it's hard for me to see with the lights in the back, but just raise your hand or just speak up as we go through. We'll maybe get some answers before this day is done. We've also added, and I also again want to thank Dave with this, a section on advisory client scenarios. That's pretty much for how do we apply this type of knowledge to specific situations that you probably are very well versed in, in your industry. You're kind of being tested on here, and if you don't like it, you blame Dave. I didn't do it. Okay? So, why don't we get started, and as I said, I have to put out the standard disclaimer that the views expressed are those of the author and presenter, myself, but all information is presented that was obtained from publicly available sources and are considered reliable. Okay? So, what are we going to talk about? We're going to talk about what we build and what we consume. How are we doing in the broad economy? Then let's move on to talk about that all important segment of the economy, the labor market. Why is it so strong when people are feeling so pensive? Okay? Inflation. Have we had enough? Will it ever go away? I mean, what's up there? I'm asking you a question. What's up there? Okay? Then let's move into monetary policy. This is normally when I have to wake you up, okay? But this is all important, because this is what's driving a lot of what's happening in our lives and in your businesses right now. Where's those interest rates going? What might that mean? And when might they come back to what we're used to in the now time? But if you take, and I really want to emphasize this, if you take a longer term view of the U.S. economy and look back at what happened the last time we had significant inflation in the economy, we are nowhere near that, okay? Monetary policy is like very, proof point, right now we have a five to five and a quarter Fed funds rate, and people think, oh my God, it's driving up interest rates. Do you know what the Fed funds rate was back in 1981 when inflation peaked? Anyone have an idea? Twelve. Twelve. Those are happy times, okay? Try 21, 21%, okay? So things could get much worse. They won't, I hope, but they were 21% in a 13% inflationary environment. So we have to always judge where we are relative to where we have been, and we're still going up. And advisory client scenarios, but let's get started. What I have here is fairly hot off the presses because the Federal Reserve Open Market Committee met just two weeks ago, and they concluded in their official statement that economic activity continues to expand at a moderate pace, job gains continue to be robust, and unemployment rate remains low. However, and they're highly focused on this, inflation remains elevated. And you might ask, well, why are they so focused on it? Because by law, they have to be. The Federal Reserve has what's called a dual mandate. And what that mandate says, almost specifically, is the Federal Reserve is responsible for achieving maximum employment, however that's defined, and steady price growth over the long term. Applying numbers to those, no number has ever been really stated that this is the Fed's goal for unemployment, but it's always been kind of accepted that full employment in this country ranges somewhere in the 4% to 5% range. We're at 3.4. On the inflation front, their goal is over the long term, a 2% average on the personal consumption expenditure rate. Right now, that rate, bless you, is running somewhere around, I think it's 4.7. Not the CPI, which you just saw come out, but the PCE, and I'll explain the differences later. That's when we get into the geek side. So, Fed's saying, right now, the banking system, and I say this not on behalf of the FDIC, but as a FDIC, actually in that group, the banking system is very sound and resilient. We had major banking crises in 2008, 2009. Hundreds of banks went out of business. We've had three right now, and they're all connected in terms of product mix, in terms of activity, and it's a reason why. But overall, the system has never been as well capitalized as it is now, and continuing to make profit. Committee seeks to achieve maximum employment, we've done that, and it will continue to closely monitor developments as they come in. And what that is put in there for is that you can't bank on there being a specific strategy, on a specific number of times the Fed will raise rates, or when they will decline. It's all data dependent. What comes through is reacted to. And also, finally, and this is really in the geek world, the Fed will continue to reduce its holdings of treasuries and mortgage-backed securities. And you may ask, well, what difference does that make? What it means is, that's pulling back assets, reserves, from the system, from the monetary system, and that makes credit a little bit harder to get, and it makes it more restrictive, and rates rise because of that. But it also keeps inflation moving down. So that is a layman's explanation of what the Fed just said, and now let's see how the numbers are in the economy. And first I'd like to talk about production and consumption. What we build and what we consume. Everyone knows what the GDP is, so no need to explain that, right? I'll pass the slide by. No. Who knows what the average GDP growth rate is in the U.S. economy? Even just a guess. Any ideas? Four. Four. Excellent. Thank you, sir. And the answer's wrong. But I also forgot, there will be a written test, and it will be graded at the end. No. Thanks for answering that. I appreciate that. No, it's actually just 2.1%. If you take the average growth rate in GDP over the long term, the U.S. grows about 2.1%. Now you will have periods where we have marked increases to that, marked increases to that, and slowdowns from that, and that's what you see right now. Looking out of the pandemic era, the last phase of it, and that would be 2022, 2021, we saw rapid growth in GDP. Rapid growth. Those numbers I haven't added up yet, but I think average somewhere around 6%. But now look what's happening in 2022 and 2023. GDP growth is slowing. And it's not just randomly. It's because that was engineered to be as such. Why? Because the Federal Reserve recognizes that continued growth in consumer demand, in wages, in employment, and other factors in the economy push up that GDP, puts more heat into the economy, pushes up inflation, given the broad mix of issues we have to deal with. So therefore, raising those rates, one would expect over the long term that numbers would come down in GDP. Now I also want to caution, they never said, and some people have misspoken, they have never said they wanted to raise unemployment. They said they wanted to slow the growth. And that's what we're seeing. So now GDP, the first, the advance estimate came in this first quarter at 1.1%, okay? And the Fed expects that to be even softer by the end of the year. Not necessarily negative, but softer than it was in the beginning of the year. How are we seeing growth in different sectors? Focus on the red bar right there, okay? What you're seeing is that consumer demand, that first group of bars, continues to be strong. And we want that, okay? You really want that, because that's what drives this economy. Okay, another question, it'll be number 2A on the test, and the question is, what percent of the U.S. economy does consumer, the consumer demand represent? Any idea? 70%. Okay, you've been here before, that's all we got. You got it. It's 70%. Think of that, 7 out of 10 dollars spent in the U.S. economy accrues to consumer demand. And I always like to put this in context, because this really shows how strong, what strength we individually have in the world economy. If you stripped out the consumer economy, and just made, consumer demand, and just made it its own economy, it would still be bigger than our next international competitor, China. It would still be bigger. And that tells you why it's so important to keep the U.S. consumer buying. Not just buying, but also producing, but buying. Because that's what motivates us forward. I think one of the most emblematic examples of why we see this is, after the terrorist attacks, I'm sorry to look at my watch, but I want to stay on time, because we got a lot to go through. And I always go over, and Kristen said, you won't today. And she scares me, so I won't. But the deal is, do you remember what President George W. Bush said after the terrorist attacks? Dave? Go shop. Go shop. And it was wisdom. It really was. Because when we get scared, and pull back, and especially the fact, and people may not like to hear this, especially the fact that, as humans, we kind of operate in a pack mentality. When you see one person do something, and more people do something, you will tend to more likely jump on board and do the same thing. Okay? A herd mentality. And when that happens in an economy, and you all start, and we all start pulling back our demand at the same time, we go into recession. And when we grow, and we start seeing people do things, and do more things, and more things, we jump on board, and we do the same thing. Sometimes we do too much of that. Kind of like leveraging our homes to buy TV sets back in 2008, 2009. That didn't work out too well, did it? But the long story short is, when we're out in the economy, and buying, the economy grows. And you can see elsewhere, gross private and domestic investment pulling back. That's basically business investment. Pulling back because interest rates are higher. Export demand is up, but not as much as it was. Imports are up, because it's still consumption, but that pulls back on total economic growth. And government expenditures still staying fairly strong. Now, how are we doing on the build and the capacity? Right now, if you ignore the drop in the middle, it's kind of hard to ignore, given that's what your eye would be pulled to, but if you ignore the drop in the middle, you can see that our industrial production, relative to 2017, we're above where we were pre-pandemic. We're already producing more than we produced, bless you. We already produced more than we did in 2017. About three to five percent more. And on top of that, our capacity utilization, how much of our productive power we bring to bear to produce that 103 index? Back to where it was prior the pandemic, around 80 percent. So what does that tell you about the U.S. economy? Any ideas? Why can we produce so much more, but still use the same capacity? Any ideas? That gentleman hasn't. Give him a dollar. Dave, give him a dollar. No. He ain't got no dollar. Okay. Go ahead and get some clients. No. You're totally right. More efficient capacity utilization. Another way to say it, technology. That's our, it's not a secret, but that's why we're so good at getting done what we do in this country. We find new ways to get things done. We have, not just in business, but in our country, a belief in continuous improvement. Things may have worked that way in the past, but we can always find some better way to do it. Okay? And we're showing the results of that in that chart. We don't use more capacity, because think about it. We still have 20% of our capacity we could bring to bear to do more. But we don't need to, because we find better ways to do them. A good example, and this may shock you, but a good example is AI. Although it's not fully reined in yet, and it's not fully endorsed yet, that's going to actually add productivity in the economy. Now, there's going to be some transition effects, like people who may work with the words, with words or data entry and stuff like that. There are going to be some transition, negative transition effects. But over the long term, that's going to add to productivity. Do you recall, those of us who are old enough, and I know none of the ladies in the room are old enough to have been born in the 1990s, but when the internet really got going, it was about in the 1990s for personal use. It was a big talk then. God, this is going to really hurt our jobs. This is going to really hurt us. All these computers coming in, they're going to fire everybody. Can you now picture doing your job without a computer? Without the internet? Same way. New things come in, make it easier for doing what we do, and we find more things to do. And that's really how to look at AI. Now, there are risks. There are big risks. Anyone remember Hal, what is that space movie? Space Odyssey 2020? There's a possibility. But let's see. As long as your name's not Hal, it's no problem. Question, is the consumer buying all this? Are they buying that this economy is better off and that we're going to be okay? Well, how do you know that? Let's look at the numbers. Let's look at the numbers. This is the consumer confidence index that's put together monthly by the conference board. And what you'll see here is that we took a major hit, and this is all referenced in 1985. That's the index year. We were up about 130 on average in consumer confidence prior to the economy going into pandemic. 30 index points above, well no, about 45 index points above where we were back in the 1980s. Now, took a huge hit down back to where we were in the 1980s. But since immediately almost, over a few quarters, moved back up to about 120, 130. And then we get the double whammy, and it was almost predictable, but no one was talking about it, I include myself, that, well, when you go into a lockdown and people stop producing, and supply chains go out of kilter, what does that mean is going to happen to inflation? It goes up. Because you still have growing demand, consumer demand, which we do. You still have growing consumer demand, but people weren't producing like they used to. So demand's far out, see the supply. And anyone here who knows anything about manufacturing knows you just can't start up overnight. It takes time to get the supply chain back into kilter. So you have inflation. And when inflation hits, something that we hadn't seen in, what was it, 30 years? 40 years? People get worried. And people start doing irrational things. Go back to what I said before, we operate in herd mentalities. We may not like to think like that. Oh, I'm an individual, I don't really do that. Yeah, right. Okay. So, question becomes, our consumer confidence, where does that put us now? Back down to about a little bit over 100. We're still feeling good about where we are, but our expectations, where are those going? Because that's what really matters. That's what really matters. Where do we expect to be? If we look at that, what we see is that there's a big divergence between our assessment of how we're staying in the present, okay, and how we are in the future. Those, that orange line, expectation, is the expectation for economic growth, for business conditions, and for labor conditions, okay, combined. Over the next six months, I mean six months forward, present situation, clearly today. These are just last month numbers. So, what do we see? We see expectations continuing to be weak. That, oh, we're going to go into recession. Things are going to tighten up. Job, the job market won't be as strong. But relative to where we are today, okay, we're kind of stable. I'm not saying that's irrational, okay. I'm not saying that's irrational because whenever, this is, I'm not giving investment advice because if I did, you'd all be broke, okay. But whenever people are fearful or uncertain, what do they generally tend to do with their assets and investments? I can't hear you. Pull it in. Withdrawals. Withdrawals. They tend to make withdrawals because they're becoming more conservative because they don't know what the future is holding, right. And when enough people do that, what happens to markets, market prices, asset prices? They pull down. And when people see them pulling back or not growing as much as they were, let's talk 2022 on the stock market, on the equity market, people start developing expectations based on that. So, it feeds upon itself. It feeds upon itself. So, my real point in saying that is right now, that's not an unexpected outcome. When you have a interest rate environment that's rising, when you have media, in my humble opinion, and I say this as the father of a journalist, overplaying their hand and saying, oh, things are going to get really bad, get really bad, get really bad. Well, that's an outcome you would expect. But at some point, that will turn. That will turn. Because we have some things that are happening that really are happening for our good. I made a joke earlier on, but it wasn't really a joke. It was a statement of fact. We spent a lot on credit in the 2000s, right? Everybody could get a house with no money down. Credit didn't really matter, it seemed like. We put out HELOCs that allowed us to mortgage our homes so we could get a 90-foot TV. Okay? Mine's still working. How's y'all's doing? But we got to the point of being totally overextended. Being totally overextended. And now, and then we paid the price, right? Economy crashed. We had a huge financial crisis. And when you have the mix of a declining economic growth coupled with a financial crisis, and our newest Nobel economist, i.e. my former boss, that being Ben Bernanke, has proved in his academic research, that's the worst times you can have in an economy. But now let's skip forward, what, 15 years? Good Lord, it's been that long. 15 years. And let's look at it now. Revolving credit is growing at a fairly steady pace. It's up a little bit from where it was. I won't say it's not because when inflation really kicked in, people started using credit cards to buy a lot of stuff that they needed because their dollar would not stretch as far. But if you look at it, it was growing before at about 5%, now growing about 10%. If you look at loans or non-revolving credit, it's still growing about the same rate. But does that really prove it? That it's still, that consumers are okay? This does. Delinquency rates are still at near historical lows. Not all of them, but close to it. Look at the blue line, single-family residential mortgages. Through the third quarter of, I need to update this, third quarter of 2022, delinquency rates on 30-year mortgages are running at around 2%. We peaked in 2009 at about 11%. It's like two different animals. If you look at credit card loans and straight loans, pretty steady. And what I'm really trying to also say here is, go back to that statement that was made earlier, that banks are sound and resilient. This is one of the major factors of why. Because that big piece of the economy has really done good money management over the last 15 years. Some of it's forced, because it's harder to get credit. But for whatever reason, it's working. And if you look at consumer debt obligation ratios, how much of your wealth, of your income you have to pay out for some reason, also very low. Mortgage debt service ratio, 4%. Peaked at about 7% during the previous recession. Consumer debt service ratio, pretty much no change. The debt service ratio, all in, still at a historic low. 1980 was the first time these numbers were available, were tracked. And all in, financial obligation ratio, that brings into things like leases, rental, and all that, still at a historic low. So the consumer wherewithal is here, and consumers are sound. Banks are sound. So where is the Fed sees going from here? I also said earlier, the Fed sees the GDP coming down a little bit, okay, through the end of the year. And thereafter, assuming things go the way that they predict, and let's be honest, no one, no institution is always correct. But I'm also a major fan of the Fed, so it'd be hard for me to say they're wrong. And also, they're the Fed, and I'm just LeVon. But the Fed sees us coming down to about the 1% area of growth in 2023, all in. And thereafter, moving back up to about the 2% level by 2025 in the long run. A lot of things can happen between now and then, but assuming no major screw-ups, like letting the debt ceiling not be taken care of, which economists and government is not making this up. If that happens, we're talking depression. We're talking serious problems, okay? I mean, just ask yourself, what if you decided to tell your mortgagors, for those who are homeowner, I'm just not going to pay next month. I decided this is not in my interest to pay anymore. At some point, your credit's going to get screwed up, right? It's the same way with the federal government. Same way with the United States. I mean, we've never had this happen before, but back in 2011, when we got this close and we had a late-night deal, it was Standard & Poor's, it was Fitch, I think it was Standard & Poor's, dropped our credit rating from AAA, the highest it could be, to AA+, which is where it still stands in that rating agency's categories. That hurts credit moving forward. And if the United States government, and think about this, how many of your clients, okay, this is rhetorical, so I'm not going to ask you to write down the exact number, or will I, but how many of your clients hold treasuries in their portfolio? Think about it, a lot. I'll bet you more than half of them. Well, if we go to the limit, if we go to the debt limit, they won't be getting paid anymore until it's fixed. And then that trickles down and hurts their asset balance, it hurts their consumption, and everyone that depends on them for it. And the next time that they want to go in and purchase treasuries, assume they do, they're going to be purchasing treasuries at higher yields because the rates have gone up and lower price. So this is nothing to play with. So people really need to be negotiating and also to be realistic. And I know none of us can make this happen, but that's just my opinion, and I promise I won't give you my opinion again until the next time I give you my opinion. Now, let's talk about the labor market. Okay, what I have here are the charts of two measures of the unemployment rate. The bottom line, the civilian unemployment rate, that's what you see every month, okay? That's what you see every month come out normally on the first Friday of the month or the second Friday of the month. Right now, it's down at 3.4%. The one above it is called the U6 index, the alternative measure, the all-in measure. And what that is, it takes the bottom measure and adds to it people who are working part-time but would prefer to be working full-time but can't find that full-time gig they want. A lot of young people coming out of college or coming out of high school tend to find themselves there when they have multiple gigs, okay? People who are discouraged, people who are marginally attached to the labor force, and people who have just given up. And what do you see here? It also, that broader measure, is also at almost a historic low. I think it is almost a historic low. It's only a difference of, I think, one-tenth of a percent. And what economists see there is look at the gap between the two lines as it's moved over time. Go back to 2013, 10 years ago. That gap was about 8 basis points, I mean 8%. Now that gap is about 3.5%. What does that mean? More people are in the labor force getting jobs, and a big bulk of that are people who didn't, who were discouraged, out the labor force before, and were disenfranchised for whatever reason. I want to measure this, and I'm very proud of this. Last month there was a record set in African-American unemployment. Normally African-American unemployment has historically in this country been twice that of white unemployment. Not anymore. African-American unemployment is now down to 4.7%. It's not even close to twice. My real point is you're seeing everyone jump in because those jobs are there. A number just came out yesterday that right now the American labor force is as historically satisfied as it's ever been. As it's ever been because of a tight labor market, rising wages, and on top of that, work from home. Don't get rid of work from home because that means LeVon's going to go back in the office, then I'll be pissed. I love work from home. But the long and short of it is the U.S. labor force is hitting on all cylinders right now. We see also, if you look at the number of jobs created each month, we're still above the norm. Go back pre-pandemic, we normally created in this job, in this economy, approximately, I'm ballparking that, that's about 190,000 jobs from home on average if you do that 10-year period, except 8-year period. Hit the pandemic, we lost 774,000 jobs on average every month in 2020. Come back though, we gained 606,000 in 2021. But still, there were a lot of jobs not being replaced. But the next year, we replaced them all and started to grow, as you can see, because now we're at 400, which is twice what we normally would have been doing. And now, this year so far, we're still above historical norm, creating 285,000 jobs a month. So when people say, well, aren't we just replacing what we lost? Yeah, we did in 2021 and part of 2022, but we're still exceeding what we're doing now, what we were doing before. So this is real economic growth. These are, what is that back in the 60s? Just the facts, man. Just the facts. Okay. I know no one caught that, but if you watched Dragnet, you would. And if you look at sectoral growth, we're seeing all the major sectors in the US economy really grow. All important professional and business services sector. Why do I say all important? Because that's what we're in and that's really important to us. That sector actually never even lost jobs during the last recession. And I'm saying this for a reason. Right now in the economy, in our culture, not necessarily the economy, in our culture, we've been starting to adopt this idea that, oh, going to college isn't worth it. We don't need to be doing, spending so much time just going to college. Well, you know, for some people that might be true because there's a ton of good jobs out there that you don't need a college degree for. But there's also a historical fact and that historical fact is people who go to college tend to have much lower unemployment rates across their entire career. When we saw 6, 7, 8, 9, 10 unemployment rates during the last recession, people who had college degrees tended during that period to have unemployment rates in the 3-4% range. On top of that also, we see that, what do you call that, the salary, the income levels are much higher. Not as much as they used to be relative to other workers, but also higher. And we're seeing significant growth now in leisure and hospitality because we get to go to these cool conferences in San Diego. I came from another one earlier this week in Fort Lauderdale. It wasn't as cool, but it was still cool. Now let's put it in context. Right now, and I'm sorry, this chart is one month old, but the numbers aren't that different. Total job openings in the United States right now, there's about 9.6 million. This shows at 9.9, okay, or it's 9.7 million. Total number of job openings per unemployed persons, approximately 1.6. Meaning there's 1.6 people, 1.6 jobs for every person in the United States who wants to work. But what's wrong with that statistic? Anybody have any ideas? The young lady right there doing this because that's pretty cool. I can't hear you. Right, that's it exactly. We've got a whole lot of jobs open, but skill sets don't necessarily match, okay? And that's a big problem, that's a big problem. For example, you're all highly well versed in advising, in financial analysis, in relationship building, okay? I could argue that, okay, I could probably do relationship building, I could probably do financial analysis, but I've never done it in context of what you do. So I couldn't do one of your jobs just off the bat like that. Another good example are welders, who we consistently don't have enough of. And I also learned personally, you can't just pick up a soldering iron and start burning up things. I had a little fire in my house recently that proved that. Those things are really hard to deal with. So it takes time to train. It takes a lot of time to train, actually, to get people in gear to meet the demand of where the demand is. And we don't really seem to have a real good plan to do that in this country. If anything, it takes us much longer to do than you would ever expect. But that's why we have such continued gap between available jobs and field jobs. And I hate to look at my thing, but I've got to make sure it's on time because of the advising section. But the long story short is, we also have to consider, I'm on my soapbox again, one thing that we're missing out on is good, solid immigration. We don't have a good immigration policy, but we need more immigrants because that's how we build our economy. You just go back through the history of the United States and look at all the advances we've had, it's because we had immigration policies that worked, not like we have today. But when we don't have enough people to fill jobs, we have roadblocks, we have blockages in the economy like we're having now. Again, I won't get on my soapbox until what? Until the next time I'm on a soapbox. So where's the Fed Senate going? That unemployment is roughly going to stay where we are. Now it may take up a little bit to the four, maybe even the 5% range, according to some of the presidents. But over the long term, steady out around 4%, which is around where the Federal Reserve System kind of believes full employment lies. Because right now, we're so far below that at 3.4%, that puts pressure on the inflation rate. Any questions, comments, concerns before we go into the last major sector? Yes ma'am? I have a lot of... To me, the heart of the issue is the inequality of the type of jobs that we can have in the world. And it's like, how can we exist, especially in the United States, we have no base of safety for these people in the form of health care, and in the form of housing, affordable housing. And so to me, I see that there's going to be this huge bubble of rise up of people who just can't make it anymore. And that's why we're having this huge split in our politics right now. So what's the answer to that? Oh yeah, let Lavon answer that one. I mean, numbers are supposed to be, but in reality, if you're boots on the ground, there's a large group of people suffering out there. And what I hear you say is we need more immigration. What I hear you say is we need to bring more people that are willing to work for nothing because those jobs pay nothing, and we provide no health care services. Okay. That is not a bad... I'm saying, let me finish before I say, because one, you did kind of mischaracterize what I was saying, but that's not a bad characterization of some of the issues we have. Really, what you're speaking about is a broader issue of income and wealth distribution in this society. The wealth distribution is a outcome of generations, since literally the beginning in society. It's an issue we can't turn like that without major advance in social policy. Okay. These numbers are about the economy, not about the social policy. Now, they do affect income distribution of where the jobs are. Okay. But at the same time, what I'm saying, we need more immigration in this economy. And I know this will not fully answer your question, but also we don't have the time, like 10 years, but when I say we need more immigration, you're right. I still agree. We do need more immigration, but immigration is not just, and I'm not trying to be stereotypical, it's not just for strawberry pickers. I'm saying also high skilled tech workers from Asia, Europe, Africa, you'd be surprised the tech abilities that we have around this world, but we are not allowing enough in with these skill sets. I mean, now we even have a difficult to bring in students. Okay. To bring in students and keep students. So it's really goes up and down through the entire spectrum of immigrants. That's what I'm saying. We need to advance policy that treats the entire spectrum of immigration. Now, with respect to, that will affect income distribution, but with respect to wealth distribution, that is an answer that really will take years. Because you're talking about basically taking seed corn from groups and moving it to other groups. And we don't do that very well in this country. Okay. We don't do that very well. So I'm not minimizing what you're saying. I just don't have the time to deal with it, which is the answer we as Americans always give. I'm sorry, but that's all I got to say. Okay. Okay. We're probably about, okay, 836. Come 850, we're going to swap over. Yes, sir. Okay. So let's say the Fed is saying, okay, we go up to 4%. We're at 3.4% now. So that's six-tenths of 1% of our thing. So you're right. It's approximately 1 million. How does the addition of 1 million unemployed affect the growth? Well, clearly it would slow it down. However, at the same time, there are jobs added every month. Okay. Okay. Go back to that 200 and what was it, 95,000 so far this year? I can't remember what it was. Okay. We still have to account for those jobs. So a lot of that also is transitional unemployment. And that's not an easy way out, but a lot of unemployment at this level are for people who are temporarily unemployed. Okay. And that tends not to have as large of an economic impact on the economy because there are social programs is not the right word, but let's call it social programs, unemployment insurance, okay, that help in that transitional period for at least six months or so, depending on how long it's been. So I'm not minimizing and saying, okay, moving from 3.4% to 4% is not a huge impact. But to the extent that it's transitional and it's not significantly higher in the time it might take to get there and keep in mind, those numbers are also estimates. Okay. And projections. They were estimating a year ago that we would be at 4% now and we're at 3.4. Okay. Hate to rush home, but let's move on. And one thing I often do, and I'm not sure Kristen will tell me. Last question is, I always stay around after and grab my ear as long as possible, but keep in mind I have very small ears, so it's hard to grab. Okay. Sir. One concern I have on credit defaults is the fact that we haven't had student loan repayment in many, many years. So as that turns on, how that's going to affect our student loan numbers? That's going to affect both. Okay. Clearly, as student loans turn back on, the rational expectation is that a piece of that is going to go into rising delinquencies and defaults. Okay. Additionally, as they turn back on, to the extent that incomes have risen since they were turned off, since they went to forbearance, one would expect that people who are exposed to student loan debt would slow down, to the extent possible, their consumption. And therefore, slow economic growth in the economy. And I personally believe that is one reason we've had them off so long, because it does have fairly significant economic impacts. One thing to also note is that student loans, the incidents, the burden of student loans, is not just in young people coming out of college. A lot of them reach all the way up into this third generation. Okay. The grandfathers, the grandmothers. Okay. That will also affect their consumption. So, as student loans come back on, one could expect, reasonably, that that should have some significant impact on, I think significant impact, on economic growth. You're talking about $1.7 trillion, approximately. Okay. I'm also, I might be wrong, I'm also just not convinced it's going to come down as soon as people say, as soon as policymakers say. But we'll see. Okay. I've got to move forward now. So, if we look at inflation, that's where we stand now. These numbers, the charts weren't updated, but the numbers weren't that big a difference. Right now, consumer price index inflation is running about 4.9%, which is very much the same as we had there. And core inflation, relative to, I didn't actually get core, I think it was up a little bit last month. But if you look at producer price inflation, significantly down, which is always a, which is a good barometer of where we'll see CPI over the long term. So, inflation is coming off, but it's very sticky. And at the same time, it's one of these that, it's one of these phenomena that it is not the same inflation as our parents' inflation was back in the 70s. And here's what I mean. If we look at, ignore these charts, I was going to go into all these numbers, but too little time now. If we go into sectoral inflation, look what's happening with food and beverages. And those numbers came down even further last month. We're not paying what we paid for eggs before, which I find amazing that we ever had to. But, look at energy, coming off its highs. But, those are goods, right? Those are goods. Let's go to services. That's why it's sticking. Inflation right now is still moving up in the services sector. And you may ask, was that really important in the United States? About 85% of the United States now finds itself in the service industry. Everyone in this room is in the service industry. Okay? And, ask yourself, how hard is it to change your salary if you're employed by someone else? It's not easy. Sometimes it goes up, sometimes it goes down. But, it's pretty hard to change professional salaries. It's easier to change non-unionized workers' salaries. Okay? Non-unionized. Look at shelter, continuing to rise. So, by raising interest rates, yes, you can have an effect over time, but not immediate. And, that's a big problem that we have now. We have it over time. It's taking time. And, it will take longer. What's causing this? I've already gone through most of this. The most important were the pandemic-induced supply shocks that are still working through the system. I saw a survey back in February. And, I can't recall the exact number, but I believe it was like 40% of the respondents who were purchasing managers still found it difficult to fully stock their desired supply chain. Forty percent. And, we're now three years into this. Consumer demand growth. We have a lot more money in our pocket over the last three years because wages have been going up. Labor market developments. Tight labor market. Wages go up. People are staying in jobs longer. Okay? That raises demand. Fiscal policy support. Both the Trump and the Biden administrations did a lot of cash infusion into the economy. So, this is not a political right or left issue. It's the fact that fiscal policy dumped cash into the economy, which is not necessarily a bad thing when you're looking into the abyss of a major recession, which is what we were going to have if that wasn't done because of COVID. And monetary policy accommodation. Actually, the least impactful, and people might say, well didn't the Fed print a whole lot of money? No, actually no, they didn't. They really didn't. And I'll show you quickly why before we go into the next session. Right here, what really drives inflation also are expectations. Are people and companies' expectations of how long it will last. Quick question, who here, and please raise your hand, who here believes that inflation will stay at the 4% level or higher for the next three years? Okay, I would say that might be at best 10-20% of you. Who would say it's going to be lower than 4%? Yep. That is consistent with the Fed beliefs. And actually, 3%, I probably could have gotten about the same number. Okay, 3%. Because I just made the mistake I should have maybe cut off at 3. This right here is an estimate of inflationary expectations. And if you see, right now, one year forward, people are expecting that inflation is going to run somewhere around the mid-4%. This is done by the Federal Reserve Bank of New York. But, three years ahead, about two and a quarter, I mean two and three quarters. Okay, and these numbers really are taking a lot of time to produce. But we don't expect this to be a forever incident, a forever thing. And that's good because what that means is we're not setting contracts. Okay, we're not setting employment contracts. We're not setting purchasing contracts with really high inflationary adjustments. And that helps take pressure off future inflation and bring it back down to the normal. And where's the Fed see as normal moving forward? Moving back to about the 2% or so level by 2024 to 2025. We don't blow up the debt limit. Okay, assuming we don't have other major shocks. But let's be honest, we've had some major shocks in the last 15 years. It's kind of like, what's the shock this year? Okay, monetary policy quickly. Okay, you can see there, we've seen rates just go skyrocket up more than 500 basis points in the course of the last 12 months. And also, you get a copy of all these. I know Dave, you send them all out and stuff, make them available, right? Okay. That's the interest rate path we've seen since 2020, just continuing going up. But here's what I was saying. Fed didn't just pump money in the economy and leave it there. The big hill in the middle, okay, that's where we saw the accommodation kick in. And that was by increasing reserve balances. And look what's happened now. It's come back. And actual currency and circulation had just a bump up from almost 5% to temporarily up to 18%, now back down to about 3%. There's not that much money, as you would think, just circulating the economy and growing. What happened is, the Fed put reserves into the system which are held where? At the Fed. And when banks draw against those reserves to make loans to us and to companies, that's what grows the system. That's what grows the money supply. And as you can see, those reserves now have been coming down because of Fed policy, tightening the screws. So, as reserves come down, money supply tightens up, access to credit tightens up, economy slows. And that's it. And that's showing down, that movement down, are the movement down of treasury securities and primarily treasury securities and MBS. So, where do the Fed see us going? And then we will switch over to our advisory. Where's the Fed see us going? If we look at those dot plot, at the dot plot, at the groups, Fed sees by the end of this year, averaging somewhere around, I don't have my glasses on, Fed rates about where they are now, on average, maybe five and a half. Coming down next year to about somewhere in the four range, year after that, down to the threes, and in the long run, back down to the twos in Fed fund rates. So, we're talking about a two to three year adjustment process back to where we were. And someone asked me the other day, well, doesn't the Fed just have to keep raising rates so we can finally get rid of the inflation? No, not necessarily. They just don't have to cut them. That's the difference. They just don't have to cut them. Just keep them high. And that is slow, and it will change people's expectations, and they see things happening in a different way, and we go back to where we were. So, my friends, what I'd like to do now is do some scenarios based on what we had, what we've learned, what you already knew, but what I learned. So, to do this, you need to take your cell phones out, assuming you're not already on them, playing with the kid game, whatever this thing's called, and text NAPFA411 to phone number 22333. And that way, you'll be able to vote. Okay? So, let's get started. We've got four advisory client scenarios. Early career professionals. Jose and Carmela. Issues, interest rates, inflation, unemployment. That's what they care about. Mid-career business. I can't hear you. Oh, go back. Go back, young man, and go back. Okay. I'll give you two to three minutes. And I'm not gonna kid you. If I was sitting out there, I wouldn't know what to do either. I don't know how to do that stuff. Okay? Bless you. Is everybody good to go now? Pretty good? Okay. Let's try it. Mid-career professionals, Aaron and Claire. They may be interested in this possible economic slowdown, interest rates, and taxes. Kyung Mi, near retirement. She's a senior leader, probably in NAPFA. Okay? And concerned about inflation and achieving market returns. And Hal and Sandy, who are already in retirement, making sense of all the different messages hitting with them. First, let's look at Jose and Carmela. They're in their late 20s, early 30s. They're planning to get married soon and buy a house. They got good jobs in IT and public relations and healthcare. They got benefits. Okay. They want to build up their savings for wedding and the house and their 401ks. They face rising mortgage rates. Home prices worry them, and they need to buy a car. Good God. They got to do a lot. And rising costs. And they're CFP professional. That is a cool commercial. I see it all the time. Look at that commercial. Has helped them develop a workable cash flow strategy, and they're saving it to an FDIC-insured savings account, earning 3%. But those savings can be curtailed if one of them loses their job. That's the scenario. So question. Given the current status and outlook for the U.S. economy, what would be a superior strategy for these early career professional? One, buy a home, pay down points on a mortgage. Two, you start voting whenever. Divert contributions from bank account to 401k. Two, stop paying student debt, placing loans in front of the parents. They'll be forgiven. Change 401k allocation to overweight international equities. Or five, continue renting, defer car purchase, increase savings to 401ks. Okay. Technology is great when it works. We'll let it adjust a little bit. And we've hit steady state somewhere around that's approximately 100 in dog years. Okay. You say continue renting, defer car purchase, and increase savings to 401ks. That's what you say. I can't say right or wrong, because I think it's a good idea, too. They're going to be on the bus. Although CNN this morning said, and pretty consistent with this, if you can defer a car purchase right now, you're better off, because car prices are, again, accelerating. So, you know what? You're spot on. Thank you. Let's go to the next one. And that being Aaron and Claire, mid-career professionals. I'll try to go through. They're about 50. Founded a company with over 150 employees, while profitable, losing a big contract, resulting in a need to lay off. Company also relies on variable rate lines of credit, making it expensive to get through times between customer payments. And for their personal plan, their CFP professional helped Aaron maximize the tax efficiency of how he's getting paid and lowering his tax bill. They helped him free up some cash to meet the goals they had for today, and save more of his children's college education a decade into the future, or for a good trip to Vegas. Now, question. What should he do, given what should he and she do, be a superior strategy for these mid-career professionals? One, move corporate accounts to higher interest-bearing bank account. Two, reduce workforce now. Move savings to bank account. Given the disparity of P ratios, allocate more to international stocks. Reduce W-2. Good God, there's no variation there, eh? Okay, everybody says 100%. Reduce W-2, increase K-1. What is K-1? To lower. What is K-1? Oh, somebody tell me after this. Okay, maybe I need to be doing that. Hedge against losing clients. Buy puts in the stocks of client companies. Okay, so otherwise, you don't like Vegas. Now, and the answer, the, I guess that wouldn't be answer. The survey says, see, I could do that stuff they do on TV. And the survey says, move corporate accounts to high interest-bearing account. 55%. But, we see coming up fast on the outside, reduce their W-2s, increase K-1s, whatever those are, to lower tax further and grow investment account. Okay, again, I go with the majority, and now people are probably just changing their things just to be contrary. Okay, move corporate accounts to high interest-bearing bank account. So, you're talking about going into what, money market mutual funds, savings accounts, that type of stuff? Okay, okay. Me not being an advisor, I don't know. Yes, as long as it's FDIC insured. And something else, people, never let your clients who are over 250 forget, they don't have to keep everything in one bank. Going to a different bank, you still get another 250. Okay, and it also diversifies their risk. Now, I am not saying that on behalf of FDIC, that's just common sense. Okay, but thank you. We've got five minutes to go, and we want to talk about senior leader Kyungmi, 61, climbed the corporate ladder, well-rewarded for it, and encountering the, why am I doing this, why keep going? Worked with her CFP professionals, she has developed a plan to get out of the corporate world and spend more time with those she loved, I assume loves, and pursuing consulting work that would be interesting and fulfilling. But Kyungmi worries, could she really afford someone to come by and clean the house and do the yard work? I've learned of TaskRabbit, that is so cool. She didn't have a regular paycheck coming in anymore. Kyungmi, concerned about how the bear mark and inflation seem to have conspired against realizing her plan, should she adjust her asset allocation? She has two years worth of living expenses and a savings account. Does inflation result in the need to increase that? Will private health insurance cover the rising cost of health care before she is eligible for health care? And what if the current tax rate sunset in 2025? Will her tax bill also eat away at a comfortable lifestyle? This woman has a whole lot of issues. So, welcome to your world, you're right, you're right. Okay, so what would be a superior strategy? One, reduce investment allocation from 70-30 to 50-50. Two, reallocate bond holdings to a SPIA for guaranteed rate. Increase savings to bank account enough to fund four years' expenses. Accelerate income in advance of TCJA. I never did catch on to that with Sunset. Invest in building of consulting practice, even if it means having less cash. Okay, this is a much more complex one, so I bet we end up having a plurality on this. I just wanted to use the word plurality. Okay, so let's assume that's approximately there, and what I would say is, you want the woman just to keep working. She's already 61, wants to enjoy herself, but get out and get a job. Invest in building of consulting practice. She said she wanted to do it, even if it means having less cash. That's fair. Increase savings, yeah. Reduce investment allocation, yeah. Accelerate income in advance of the tax, Sunset. No one wants to do that. Okay, and finally, we have five minutes left. Oh, that's an hour to me. Hal and Sandy, two youngsters in retirement in their late 70s and healthy. Between their pensions, social security payments, and required minimum distributions, they're comfortable living within their means. For years, they provided a substantial amount of financial support to one of their children, a single parent working in theater. That'll explain why. They worry about the increasing cost of healthcare and just about everything else, including their long-term care insurance premiums. They try not to look at their investment portfolio, but 2022 has made them uncomfortable, as it did everyone. Many of their neighbors watch too much cable TV. They're judgmental people, so they hear many opinions about the economy and where it's headed. They look to their CFP professional for some clarity. What should they be thinking? What does this mean to them? Should they be doing anything differently? Okay, what's the superior investment strategy? One, write. Tell their TV to turn off the damn TV. Two, review their financial stability so they don't worry so much. Okay, three. David actually wrote these. Okay, three. With money market funds yielding 4.8% sale bonds by cash, four, raise two years of cash for required minimum distributions now in anticipation of market drop. Who knows what the market's going to do, so that should be zero. And five, lower tax bill by making qualified charitable distributions from their IRAs. And it's on you. Yeah, that should be. That should be on there. And by far, the majority, in fact, I think that's the strong, one of the strongest numbers we've seen, review their financial stability so they don't worry so much. Supposed to be their golden years, not their lead years. Okay, and my friends, we are done on time. Trust me, you're no more shocked than I am. I never thought we'd get done on time. But I won't go through all this. You know it by now. It'll be on the test. And I wanted to say thank you so much, Napa. I truly appreciate the opportunity to share your morning with you, to come here to speak with you. And I'll be hanging around the perimeter for the next few minutes or so. If you have any questions, please come up and ask, and maybe I'll have the answer. If not, I'll fake it really well. And thank you guys. I truly appreciate it.

Dr. LeVon Henry

senior policy analyst

Federal Deposit Insurance Corporation

FDIC

U.S. economy

monetary policy

inflation

labor market conditions

interest rates

client groups

financial stability