Prayers go to these folks in houston for hurricane army. Im sure you will comment about some of that later on, rob. We are going to talk about the , Monetary Policy, lets start off with u. S. Economy. Where do we stand right now, what is the outlook for the next three to five years . Was 1. 2 , Second Quarter was about 2 . Our own forecast was for the year 2017, it should grow not greately 2. 25 , by historical standards, but certainly sufficient in our view to further take strikeout of the labor market, drive down the Unemployment Rate lightly, and other measures of employment slack. We can talk about a number of reasons why gdp growth is more sluggish now than it was 10 years ago, 15 years ago. The number one reason is aging demographics in the United States. Biggest headwind for Economic Growth in this country is the fact that our population is aging, and workers are aging out of the workforce. A lot has been made to the fact that Labor Participation rate in 20 2007 was about 66 , today is 63 . The bulk of that decline is demographic, it gets worse over the next 10 years. We think the Participation Rate is going to go below 61 . There are a number of other big secular transits to me that, the most significant. Explain why gdp growth is sluggish. There are a number of things we can do to deal with this demographic issue, and the things that come to mind are getting more women into the workforce, thats pretty much plateaued. Roving skills training [inaudible] if we dont grow the workforce, its going to be hard to grow gdp. Is,ontroversial is it immigration is a central, distinctive competence of the United States. Is one of the reasons weve been able to grow for many decades. My grandparents were not born here, that may be true of many of you here, too. I dont think i think we are in a 2 growth economy, i would love to tell you over the next five years is going to go like this. But demographic trends are going to and testify in testify intensify. Its going to grow slower. You mentioned the demographic issue, but you also referred to for secular trends. It also talked about globalization and technology and disruption. Will you talk about that . I talked about aging demographics, that they big driver of gdp. The second big driver, globalization. Globalization has taken a lot of different forms over my lifetime. It used to be a lot of Industries Getting moved offshore, etc. Thats very true. Today globalization, a character of it has changed dramatically. The trade deficits that we run with mexico is an intermediate goods trade deficit today. Our research has shown about 70 of the goods we import from mexico are intermediate goods. It means they are going back and forth across the border. These are trade partnerships and logistics between manufacturing and other companies here and mexico that have allowed those u. S. Companies to remain more competitive and build jobs in the United States. Deficitast, most of our with china is a final goods deficit, very different. Back to globalization, what it means today, in some cases we used to think about the shoe industry getting moved offshore, today more likely it means that integrated supply chains and logistics that allow countries on this hemisphere to keep jobs and keep them from going to asia. Its a big driver, it is misunderstood. Confused sometimes with Technology Enabled disruption, which is a much more powerful driver today. I think much more likely explains many job losses in the industry today that does localization. We have attributed many job immigration,de or more likely job losses have nothing to do with either. They have much more to do with the fact that amazon versus retail, every other industry disruptive competitors, usually able togy enabled, drive down costs, improve options for consumers, and tend to have the effect of limiting. Rice of power businesses today if you have a High School Education or less, you are much more likely to be vulnerable to being squeezed out of your job. Because skills training is not beefedup enough, you are very ,ikely the next obvious take you may be in a much lower paying job. If you have a college education, youre much more able to be in the field of Technology Enabled disruption. We are confusing the two. If we attribute job losses to , coming as a result of Technology Enabled disruption, than our policy prescriptions are also going to be misguided. I think we are at this stage in our history, for all the pain and adjustment weve made, we are now at the point where possibly globalization is a fact for greater growth in this company country. And growing the workforce through immigration, the thing we are educating these losses to requires much more skills training and other policy prescriptions. Comesery critical when it to trade, immigration, skills training, Infrastructure Spending, that we get this diagnosis right. If we get it wrong, or is confused, were going to make decisions that cause it to grow slower. Right now, a lot of small towns 150250,000, are struggling because they are losing population. Could be coulter, kids want to go to new york, or someplace else. The second issue is we are at a war for people in this country, because of an aging population. Feuding withtually each other to win people. Texas is winning the war. Many other states can rattle them off, are losing people. I think thats making this rural versus city issue even worse. We are lacking population. The diagnosis of these issues is a big part of what we do, because we need to get this diagnosis right. Not just for Monetary Policy, but to inform policymakers. We may be is confusing the diagnosis of what is going on. Lets talk about the debt situation. List of a going on about whether we should raise the debt ceiling or not. We have a lot of debt, especially when you factor in the unfunded future in parliament estimated at 46 trillion. What changes are needed here . The end of the debt to circle that super cycle. , weugh most of my lifetime in this country when we had downturn or economic weakness, basically increased our debt to gdp often stimulate mark wrote. We call the tax cuts. Was, weeffect of it stimulated more growth. We are at the end of the road here with public debt of the government about 76 of the gdp. Surprise, yet theres polarization in d. C. , more partisan and all that. A surprise that we havent seen a fiscal policy in about eight years, basically. We are highly leveraged, people in a d. C. Know it. The capacity, you are seeing it play out in all of these debates are having. Why is it so hard . One of the issues is we are highly leveraged, and they are aware of it. They dont have a lot of room to increase debt to gdp further. The last eightr years, most economic policies and voluntary policies, not just in the United States, most of the western world. Banker, you think of them fond of Monetary Policy, there are limits. Monetary policy is Interest Rates and use of our Balance Sheets. Its not structural reform, was an example of structural reform . Skills training, immigration , Infrastructure Spending. We are at the stage of our development where Monetary Policy alone isnt going to do the trick, but we are highly leveraged. The challenge is how do you make other physical policies, and other fiscal policies and other reforms . Biglone can deal with this secular driver that we just talked about. I think its good for a central bank or to say that. We have an Important Role to play, but we need broader policy eight years after the crisis, its time for broader Economic Policy if we are going to grow faster. You say whats so bad about 2 . Problem, it would be a problem if we werent so highly leveraged. What Services Debt to the company . Income for tax income, you needed to service debt. Grow very going to slowly, we are going to get more leveraged, particularly as we age. I think we have to find ways to grow faster, or restructure the debt, or likely both. Thats the big problem we face. Up. Trying to cheer you households are more delayed. Households the good news is 2007 house cook also centerwas household values looked totally reasonable. Home prices were very high. Years, thest eight household sector has slowly delivered. Not by reducing get that much, incomes have grown, they have an increase in debt, now the household sector is in pretty decent shape. While 2 might not be what we hope for, im pretty confident this is a very good underpinning to our gdp growth. The trick is how do we grow faster . What about the stock market . You probably cant speculate on the stock market, its looking good. Are weheaded higher seeing an impending crash . In my previous career, i was very free to comment on the stock market. In this job, not so much. Observations. W it occurs to me all say some antiseptic things here. With happened in the markets, we went from rates are low, but they are probably going to go up, to rates are low, and i wonder when if going to the, two rates are low and they are going to stay up. Pes cap rates, you name it, we are best done expectations of rates. Where rates so low . Why are rates so low . The 10 yearers of treasury, one is perspective gdp growth. Expectations of future gdp growth is the primary driver of the tenure treasures. The secondary driver is globally has been a lot of it created by central banks, which is why i believe strongly we should reduce our Balance Sheet as soon as we can. Actually think the main reason for the tenure is future growth being weak. If thats the case, and the market has its head, its gorgeously slower for song say lord for longer. As a central banker, i dont worry as much as people might think about elevated valuations. It could be a healthy thing, historically, corrections alone dont necessarily mean systemic risk. With dust created is the elevated valuation brings an elevated level of debt. You have very healthy real estate values, may be too much leverage. Had veryy the fed has tough, and we have had a very tough with other agencies. Tough regulatory policies. I personally think there needs to be regulatory relief for small, midsized banks. I think for big banks, we may very well serve a very tough macro prudential policies. Explainps exchange my they are more elevated. The part that worries me is excess debt building up alongside us. We just took a snapshot, i think its still manageable, but i think this probably is not the time to be weakening back were to contrast of policy. This high valuation and good macro prudential policies probably go together, if we learned anything from 20072008, we have evaluations, low rates, and was regulatory policies and we made a big price for it. I dont think we should make that mistake again. I watched the yield curve for the last many years. The reason i look at the yield curve for it if you reasons. Accommodated,to are restricted. Theres a theoretical concept in my mind it im thinking about Interest Rates, its called the neutral rate. You are not going to find it on your bloomberg screen, its theoretical. Its the rate that we are neater accommodated or restricted we are neither accommodated or restricted. The curve is instructive, there are a lot of things we look at. The 10 year treasury at 209 tells you a Little Something about what the neutral rate might be. Neutral gray today neutral rate today is much closer to 2. 5 than it is 3 . Tenures ago, i would say its closer to 4 . Why is it so much lower . Perspective growth driven heavily by aging demographics and slower Workforce Group that i just talked about. 100125 is accommodated, i dont think its as accommodated as people think. I watch the yield curve to learn what the market is saying about prospective growth and about rates. I think it really reinforces that the neutral fed funds rate where we settle up ultimately over the next x. Of time is probably closer to 2. 5. Lets move to the Global Economy. What are 34 major risks you see, and what countries or regions do typically monitor when you consider policy . Lets jump around the world. Europe is doing better, growing faster, but thats in the context of less than 2 gdp growth. They have a lot of the same high debt to gdp as the government level, aging demographic, structural issues, a lot of the same issues we do. Mexico and canada have their own issues. Mexico has very good demographics, canada has aging demographics, mexico has been through a lot over the last number of years, weakness in energy, and worry about our trading relations. Their currencies have been all over the place. A lot of volatility, and they have raised their own fed funds rate multiple times to try to fight inflation. In. R 100 the world that does have inflation then we go to asia,. Better demographics, better debt to gdp, except the biggest part of asia is china. Chinasimpact on the world has changed, it is dramatically bigger, the way its grown its going to grow this year approximately about six and a half percent gdp. You that sixtold months ago, i can tell you that six months from now. They target a gdp level, and n they use debt increase increasing the energy to be to build fill the gap. They have double gdp in china, unlikely to be sustainable. When i look at Global Growth, its better, thats good news, except part of that thing better is China Growing 6. 5 . Im confident that the world is going to have to get used to China Growing more slowly. Theyre not going to be able to use increasing debt to gdp to stimulate gdp growth. Were going to have to get used to to their floating down. For a lot of is reasons, i think your emerging markets are more stable. I think Global Growth picture looks great better. We should get comfortable with the idea that part of that growth is china, i think its likely that china growth is going to drift lower because they are going to need to stop increasing debt to gdp to keep it. Globalization i think is a source of opportunity for the United States, not a threat. I think one of the keys to the futures of the United States is more more to integrate with the rest of the world in a defensible way so that we can grow faster. Jackson hole draghi made a fromoint, do see a threat product protectionism to the Global Economy . Is a concern its a concern, he wants to make sure theirs good strong for policy, he wants he worried about he seesonism because the same problems that i just talked about. Aging demographics, highlevels of Government Debt to see the inward goodturning sam closing up is probably going to mean that were going to grow more slowly at a time when we are likely to grow more slowly anyhow. I believe we need to make smart trade decisions, smart immigration decisions, i think these two policy areas are sources of opportunity for the and sourcess, probably greater growth. Even though they are being characterized as threars. I think that is not the case, job losses being treated to those things are likely going on within the corners of the United States with Technology Enabled disruption. Those trends on disruption are accelerating in a powerful way in my judgment. Market. About the oil with your barrel, october the Energy Sector . Lets what is your outlook for the Energy Sector. We ares step back heading towards Global Supply demand balance. We spent the last couple of years painfully trying to find it. We found it by the u. S. Cutting its output about one Million Barrels a day, which was really painful. Day,9. 6 Million Barrels a to 8. 6 Million Barrels. While we were cutting, those cuts were almost more than offset by growth and opec, and russia, and other oilproducing nations. We didnt cut supply at all, we continued to grow supply. The reason we are getting in the balance is because demand is growing about 1. 3 barrels a day. Now you flip, and at the end of 2016, opec announces that they are going to cut about 1. 8 Million Barrels a day, significant. In a global market, supply demand about 9. 6 Million Barrels. That helps support the price. Has gone fromtes approximately a low of 8. 6 Million Barrels a day to about 8. 9 Million Barrels a day at the end of last year. Its our judgment we are going to finish at about 9. 8 million. While opecs cutting, we are growing again. Pretty frustrating for them. I think for the next number of years, we have what i call a fragile equilibrium. Whenever prices move up above 50, euros going to see greater supply in a shale, more output. , more if you see the price break, you are going to see supply decline. Supply output declining because there is a strong curve in shale, you need to produce more and more to keep growing. It wouldnt surprise me to see million you have you may have. Eitherk above 50, Cutting Supply or increasing supply. I would guess the new normal is dollars. An the 4550 you will see times when you turn it on and they say it is going up or down. Neither is going to be true, because you have this regulator, which is the sh