An Economic Forecast in Uncertain Times Des Moines, IA February 13 th , 2014

An Economic Forecast in Uncertain Times Des Moines, IA February 13th, 2014

U.S. Forecast

U.S. Forecast A Cloud of Policy Uncertainty Hangs Over the Economy Health Care Reform Impact on labor market Dodd-Frank Financial Regulatory Reform Impact on credit flows & financial sector 47% (132) Fiscal “Cliff” Sequester, shutdown/debt ceiling… Monetary Policy

U.S. Forecast A recent paper has created an index that quantifies economic policy uncertainty and analyzes its economic impact: Measuring Economic Policy Uncertainty By Scott R. Baker Nicholas Bloom, and Steven J. Davis

U.S. Forecast The index has three components: Newspaper coverage of policy-related economic uncertainty. Number of federal tax code provisions set to expire in future years Disagreement among economic forecasters (Survey of Professional Forecasters)

U.S. Forecast The economic impact of economic policy uncertainty Statistical analysis in the paper show that higher policy uncertainty causes: Lower private investment Lower industrial production Much lower employment

Economic Policy Uncertainty Index

U.S. Forecast

U.S. Forecast Sky Mall™ Policy: An Expensive Policy that Fails to Achieve its Desired Outcome

U.S. Forecast

U.S. Forecast Sky Mall™ Policies: T.A.R.P. Foreclosure Prevention Act 2009 ARRA of 2009 Shovel ready projects? Making work pay tax breaks Affordable Care Act

U.S. Forecast Lost housing wealth Weak labor market recovery Both have weighed on consumers “Mini age of austerity”

U.S. Household Wealth (Trillions of $)

U.S. Economic Outlook

U.S. Forecast • Monetary Policy • The job of the Federal Reserve is to take away the punch bowl just as the party gets going William McChesney Martin Former Fed Chairman

U.S. Forecast • Monetary Policy • Fed Funds rate target 0% • QEI and QEII completed • QE III • Taper began in December • Is inflation a worry?

U.S. Forecast • Money Supply Process • Federal Reserve Balance Sheet • Key Liabilities: • Money in Circulation • Bank Reserves • The sum of the two = monetary base • Money Supply = money multiplier *monetary base

U.S. Forecast

Housing Market Housing Finance Unsustainably high share of cash transactions Mortgage availability has been restricted by Dodd Frank Capital Standards Underwriting Standards Limited Private Securitization Demise of Mortgage Brokering Shell shock Is this a good thing or a bad thing?

Thank you • Sean M. Snaith, Ph.D. • Director • Institute for Economic Competitiveness • (407) 823-1453 • Sean@SeanSnaith.com • WWW.IEC.UCF.EDU • www.facebook.com/seansnaith • Twitter: @seansnaith

An Economic Forecast in Uncertain Times Des Moines, IA February 13 th , 2014