Hi. We're, here with Carl Tannenbaum, chief economist of Northern Trust. Carl, great to see you.
Good to be with you.
So we are in the ninth anniversary of the US expansion. How long do you see this going on?
Well, before making that prediction, I do think we need to say how remarkable it's been that we've had this kind of expansion. If you think back to 2009, when we were struggling to get past the financial crisis, if you had said, we were about to start one of the longest expansions we've ever had, I would have called you foolish, but that's where we are. And because we have still a lot of momentum in the American economy, primarily because of the tax reform, I think it very likely that we're going to break the record of 10 years that we set in the 1990s.
Why has this particular expansion lasted so long?
I think one reason is that it started slowly in the first five years of this expansion did not have economic growth. It was very powerful. We had a lot of households who were trying to get their debt under control and had contained their spending. And so it really wasn't a roaring robust expansion, which probably left a little bit more room to run once it got to its fifth birthday, and we're just using up that capacity now.
What could end the positive cycle here?
It's cliche to say, but expansions rarely die simply of old age. Something kills them. And that something is usually a policy mistake, either a monetary policy mistakes, let's say that the Fed would raise interest rates too far too fast, or a fiscal policy mistake where our deficit gets a little out of control, and treasury interest rates rise. Or a trade policy mistake where some of the things that we're trying to achieve in the trade arena end up backfiring and constricting economic activity. Those are the things that I'd be watching for signs that the expansion days may be numbered.
How do you think policymakers would react if there were a downturn?
Well, this is a potential source of concern. Even though we've been expanding for a very long time, interest rates are still very low. So the Federal Reserve has very limited room to lower interest rates, which is what they typically do in order to keep a recession from going from bad to worse. Across Washington, our budget deficit is very high and so is our debt. So the federal government may not be able to do the kind of spending that they often do in order to put a floor under recession. So I'm hoping very much that recession doesn't come anytime soon because our resources to deal with it are thin at the moment.
Carl, thank you for your thoughts.