Hi. We're here with Carl Tannenbaum, Chief Economist of Northern Trust. Carl, great to see you.
Good to be with you.
So the results from the first quarter are in. Did the first three months of the year live up to expectations?
Not quite. We came out of last year with a lot of momentum on the back of a strong fourth quarter and a strong holiday retail season. Consumers apparently took a little bit of a breather during the first three months of the year, perhaps getting their balance sheets back in order. We also had some recovery spending related to the natural disasters that we had endured during the middle of 2017 that was present in the fourth quarter, and not in the first. So I would guess we're going to come in below expectations.
What is the outlook for US consumers? Do you see that part of the economy carrying things forward?
Absolutely. All of the traffic lights for consumers seem to be green. We've created an immense number of jobs, not just in the last year, but since 2009. That's restored incomes for a lot of homes that were struggling to keep that up. We've seen immense gains in the equity markets, which create wealth effects that carry over into spending. We have going forward a lot of the impacts of tax reform will put more money into people's pockets. And government spending coming off the back of that will also be very stimulative. So I think the quarters ahead are going to be very strong.
What are your expectations for inflation and interest rates?
Inflation, so far, has been very well-controlled. Capacity in the economy still seems to be comfortably accommodating the additional demand that we've had. But given that we're going to be growing at a rapid rate very late in an economic expansion, that combination often puts upward pressure on the price levels.
I suspect that the risks on inflation are to the upside, and that carries over to what the Federal Reserve might do if they feel as if inflation is going to pick up and perhaps exceed their target. They may raise interest rates a little bit more aggressively. For now, they've been patient, and I expect them to continue being so.
Carl, what are the key risks you see on the horizon?
I would name two, both in the policy arena. First, we're in the midst of some delicate trade conversations, both with China and within the North American hemisphere. The outcome of those could have a very big impact on growth and inflation. And the unknown of how their fiscal situation is going to evolve. We have the promise of some short-term stimulus, but also the long-term additions to the debt.
How worried are you about these risks?
My worry is growing a little bit simply because of the unpredictability around them. And I think uncertainty is the enemy of economic and market performance.
Well, Carl, thanks for your perspective.