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3/12/2018 1 1 ‘GOOD VIBRATIONS’ March 20, 2018 2 2018 Interagency Accounting Conference, Arlington, Virginia March 20, 2018 From ‘Secular Stagnation’ (Really?)

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Page 1: ‘GOOD VIBRATIONS’ - FDIC...‘GOOD VIBRATIONS’ March 20, 2018 2 2018 Interagency Accounting Conference, Arlington, Virginia March 20, 2018 From ‘Secular Stagnation’ (Really?)

3/12/2018

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‘GOOD VIBRATIONS’

March 20, 2018

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

From ‘Secular Stagnation’ (Really?)

Page 2: ‘GOOD VIBRATIONS’ - FDIC...‘GOOD VIBRATIONS’ March 20, 2018 2 2018 Interagency Accounting Conference, Arlington, Virginia March 20, 2018 From ‘Secular Stagnation’ (Really?)

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Real U.S. GDP growth (percent change from the previous year)

Sources: Haver Analytics; U.S. Department of Commerce; NBER Macroeconomic database; Ray Fair. Updated through 2017 Q4.

Despite Slow Growth …

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Unemployment (percent of the labor force)

Sources: Haver Analytics; U.S. Department of Labor. Updated through November 2017.

… We’re Back On Our Feet

Page 3: ‘GOOD VIBRATIONS’ - FDIC...‘GOOD VIBRATIONS’ March 20, 2018 2 2018 Interagency Accounting Conference, Arlington, Virginia March 20, 2018 From ‘Secular Stagnation’ (Really?)

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Working-age population (% oya) and labor force (annualized % ch from seven years earlier)

Sources: Haver Analytics; Census. Updated through January 2018.

Demographics Slows Our Speed Limit

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Initial applications for unemployment benefits (thousands, weekly)

Sources: Haver Analytics; U.S. Department of Labor. Updated through March 3, 2018.

No One Knows the Economy Better Than This

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Initial applications for unemployment benefits (weekly, percent of the labor force)

Sources: Haver Analytics; U.S. Department of Labor. Updated through March 3, 2018.

Claims Are At Historical Percentage Lows

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Claimants (number) Initial applications for unemployment benefits (thousands, weekly)

Sources: Haver Analytics; U.S. Department of Labor. Updated through February 24, 2018 (claimants) and March 3, 2018 (claims).

Claims and Claimants

Page 5: ‘GOOD VIBRATIONS’ - FDIC...‘GOOD VIBRATIONS’ March 20, 2018 2 2018 Interagency Accounting Conference, Arlington, Virginia March 20, 2018 From ‘Secular Stagnation’ (Really?)

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

To ‘Overheating’ Worries (Chill)

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Less monetary support, dearer energy; but …

Global revival;

Diminished energy drags;

Regulatory reform (?);

Hurricane recovery (+½ percentage point boost in 2018);

Tax reform and relief (½ to 1½ percentage point boost) ;

Equity wealth gains (1 to 2 percentage points boost).

Stimulus In the Pipeline …

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Real GDP and aggregate hours worked (percent change from 12 months earlier)

Sources: Haver Analytics; Macroeconomic Advisers. Updated through December 2017 (GDP) and January 2018 (hours).

… Will Lift Growth for a While

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

1) Can we handle it?

2) Can we hold high ground?

3) What about the fiscal outlook?

Three Questions

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Selected chain PCE inflation measures (percent change from 12 months earlier)

Sources: Haver Analytics; NBER‐designated recession bars; U.S. Department of Commerce. Updated through December 2017.

Is Overheating a Risk?

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Labor force participation for selected cohorts (percent of the respective population)

Sources: Haver Analytics; U.S. Department of Labor. Updated through January 2018.

Some Unemployment Isn’t Visible

Implied number of dropouts compared with 2007 participation rates:

403,000

532,000

623,000

642,000

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Labor force participation for 20- to 45-year olds (percent of the respective population)

Sources: Haver Analytics; U.S. Department of Labor. Updated through January 2018.

Some Unemployment Isn’t Visible

Implied number of dropouts compared with 2007 participation rates:

1,466,000

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Unemployment (percent of the labor force)

Sources: Haver Analytics; U.S. Department of Labor. Updated through January 2018.

So, 4.1 Percent Isn’t the Whole Story

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Labor force participation for selected cohorts (percent of the respective population)

Sources: Haver Analytics; U.S. Department of Labor. Updated through 2016.

Immigration Is a Safety Valve for the U.S.

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Employment and the labor force (percent change from 12 months earlier)

Sources: Haver Analytics; U.S. Department of Labor. Updated through January 2018.

Why Else Would Job Growth Be So Strong?

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Average hourly earnings (percent change from 12 months earlier)

Sources: Haver Analytics; U.S. Department of Labor. Updated through January 2018.

Why Are Wage Trends So Tame?

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Real GDP per hour ($ per hour) (annualized percent change)

Sources: Haver Analytics; U.S. Department of Labor; U.S. Department of Commerce. Updated through 2017 Q4.

Productivity Is the Key

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

1) Can we handle it?

2) Can we hold high ground?

3) What about the fiscal outlook?

Three Questions

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Unemployment (percent of the labor force)

Sources: Haver Analytics; U.S. Department of Labor. Updated through January 2018.

History Books Have a Sober Story to Tell

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

P-E ratio of the Wilshire 5000

Sources: Haver Analytics; U.S. Department of Commerce; Federal Reserve Board. Updated through 2017 Q2.

“Longevity” Is a Big Issue

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

1) Can we handle it?

2) Can we hold high ground?

3) What about the fiscal outlook?

Three Questions

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

U.S federal deficit ($ billions) (percent of GDP)

Sources: Haver Analytics; U.S. Department of Commerce; NBER Macroeconomic database. Updated through November 2017.

What CBO Sees Isn’t What We Saw

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Real U.S. GDP growth (percent change from four quarters earlier)

Sources: Haver Analytics; U.S. Department of Commerce; NBER Macroeconomic database. Updated through 2017 Q3.

Promises Reflect a Century of 3.5% Growth

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Long-term revenue and spending projections (percent of GDP)

Sources: Haver Analytics; Congressional Budget Office. Updated through 2016.

2% Growth Doesn’t Work …

Actual Projected

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Long-term revenue and spending projections (percent of GDP)

Sources: Haver Analytics; Congressional Budget Office. Updated through 2016.

… 3% Growth Does …

Actual Projected

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Long-term revenue and spending projections (percent of GDP)

Sources: Haver Analytics; Congressional Budget Office. Updated through 2016.

… 3.5% Even Better

Actual Projected

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Appendix 1. The Fed’s Long Goodbye

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Core PCE inflation (% ch from 12 months earlier) Unemployment (% of the labor force)

Sources: Haver Analytics; U.S. Department of Commerce; U.S. Department of Labor. Updated through January 2018 (inflation) and January 2018 (unemployment).

With the Economy Back Home …

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

CPI and core CPI (percent change from 12 months earlier)

Sources: Haver Analytics; U.S. Department of Commerce. Updated through January 2018

And Inflation Working It’s Way to 2%

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Nominal federal funds rate and core inflation (percent)

Sources: Haver Analytics; U.S. Department of Commerce; Federal Reserve Board. Updated through September 2017 (inflation) and November 10, 2017 (federal funds rate).

The Fed’s End Game … 1% Over Inflation …

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Federal Reserve liabilities (billions of dollars)

Sources: Haver Analytics; Federal Reserve Board. Updated through February 28, 2018.

Balance Sheet Normalization …

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Excess reserves (billions of dollars)

Sources: Haver Analytics; Federal Reserve Board. Updated through November 8, 2017.

… Means Draining Excess Reserves

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

Components of the 5 x 5 nominal Treasury yield (percent)

Sources: Haver Analytics; Federal Reserve Board. Updated through November 10, 2017.

Uncertain Implications for Bonds

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

CONTACT:James E. GlassmanTelephone: (212) 270‐0778 [email protected]

© 2018 JPMorgan Chase & Co. All rights reserved. Chase, JPMorgan and JPMorgan Chase are marketing names for certain businesses of JPMorgan Chase & Co. and its subsidiaries worldwide (collectively, “JPMC”). The material contained herein is intended as a general market commentary. To the extent indices have been used in this commentary, please note that it is not possible to invest directly in an index. Opinions expressed herein are those of James Glassman and may differ from those of other J.P. Morgan employees and affiliates. This information in no way constitutes J.P. Morgan research and should not be treated as such. Further, the views expressed herein may differ from that contained in J.P. Morgan research reports. The above summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.