Hi. We're here with Carl Tannenbaum, Chief Economist of Northern Trust. Carl, great to see you.
Good to be with you.
There's a lot going on in Washington. Do you see changes coming in to the Federal Reserve?
It's certainly a possibility. The Fed, which was a hero during the financial crisis for getting it through, has become, over the past couple of years, a bit of a villain in Washington as congressmen have felt very free to criticize the Fed and Chair Yellen. And President Trump on the campaign trail echoed those concerns. So the administration and the Congress will have a chance to put their own stamp on the Fed because there are now a number of openings on the Federal Reserve Board, which coordinates policy. And we're expecting some nominations to those positions very, very soon.
If the White House had its druthers, would it favor high interest rates or lower interest rates?
Now, that's a great question because we've heard a little bit of both. On the campaign trail and from the Congress, low rates have certainly been harmful to savers. And, in addition, they invite the kind of financial market excesses that we just got through cleaning up. And so by far the bigger political tone has been that the Fed should be raising interest rates more regularly and aggressively.
However, our country is still in debt. And many of the proposals that are being forwarded by the White House and considered by the Congress might add to the deficit-- for instance, for infrastructure spending or if there is a tax cut. And if we have a bigger deficit and interest rates are higher, that gets to be more expensive. So, again, the tone of what the administration might like to see from the Fed will be important as they select new candidates for the board.
At the same time, there's a lot of talk about loosening financial regulations. What are the pros and cons of going down that road?
We certainly added a great deal to financial regulations since the crisis. And, in some cases, that's been very well informed. We certainly do not want to go back to the type of mortgage abuses that we had in the years prior to the crisis. On the other hand, the Dodd-Frank Act in particular was very broad and all encompassing and included many things that had relatively little to do with the crisis and have probably not contributed that much more to financial safety. So we have the opportunity, I think, to take a hard look at those things.
On the other hand, a complete rollback, I think, would be very dangerous. Again, we don't want to go back to some of the excess we saw before, especially at a time that the economy seems to be running well and the markets are richly valued.
How do you see monetary policy unfolding in the coming months?
The Federal Reserve over the course of the last three years has been exceptionally cautious, and I don't expect that to change. They are moving slowly to make sure that the gains that we've gotten in the economy are not easily lost. And they're also aware that higher interest rates do create additional costs for debtors both here and overseas. We're still expecting additional interest rate increases at midyear and at the end of the year. But, of course, the data will tell what the actual schedule will be.
Carl, thanks for your time.