Daily Difference: Tom Cladis Visits with the Denver Federal Reserve:
Last month, Tom Cladis, Gill Capital Partners’ VP of Institutional Services, was invited to join an intimate round-table discussion with Kansas City Federal Reserve Bank President Esther George at the Denver Federal Reserve to discuss views on the economy and the current bond market. Tom’s excitement from the overall experience was so contagious, we decided to interview him for a firsthand account of his experience: Q: Who is Kansas City Federal Reserve Bank President Esther George?
Tom: A genuinely congenial woman and die-hard Royals fan! Esther George is the president and chief executive of the Federal Reserve Bank of Kansas City and is responsible for overseeing the 10th district Kansas City branch.
Q: How would you describe your experience?
Tom: I’ll admit I was a bit nervous and excited at the same time. Getting the invite in itself was an honor. As I pulled up to the Federal Reserve, my car was checked for bombs while another stern military person stood by with what looked like an anti-aircraft bazooka at the ready. Once inside, everyone was exceedingly cordial and I was ushered to a waiting area which was very cool - there is a history of the Federal Reserve, displays of currencies from all eras, and a display of what $30 million looks like. All in all, it was very impressive!
Q: What did Esther George share?
Tom: Ms. George started out the evening with her views on the economy and her thoughts on when it would be prudent for the Fed to begin to raise interest rates. She believes that the US economy is on solid footing, that possible deflation is not an issue, and she’s in the sooner-rather-than-later camp in terms of rate hikes (allowing 12-18 months for the rate hike to affect economic activity). Interestingly enough, in spelling out the reasons for her opinions, she made no mention of events around the globe or of the Saudi oil gambit.
Q: We know you were disguised as an influential local businessman; however, we happen to know you have more than 30 years’ experience in the financial industry watching the daily activity of the bond market…you had to have some thoughts and comments?
Tom: I emphasized the onerous regulation Main Street banks have had to endure, not of their doing, but due to the abuses and excesses of their Wall Street bank counterparts. I then went on to explain why the bond market does not trust the Fed and feels that the FOMC should err on the side of later rather than sooner in deciding when to raise rates (weak US economic data of late, negative interest rates in Europe, the strong dollar, currency wars, price of oil, China struggling, the Fed portfolio runoff in 2016, etc.)
Q: Many Americans are concerned about various asset bubbles building in some segments of the economy? Is the Federal Reserve just as concerned and does this affect their decision on when to raise rates?
Tom: Ms. George did respond that the governors were aware of bubbles building in some segments of the economy, but that it is not part of its mandate to prioritize specific areas of the economy; she did reveal, however, that her fellow governors were not terribly concerned because they think the U.S. economy as a whole could withstand whatever bubbles may pop in outlier areas. That being said, she did allow that back in 2006 and 2007, the governors were aware of some imbalances building up in the sub-prime mortgage arena, but they didn’t think them to be significant enough to derail the U.S. economic juggernaut(!)
Q: Typically, GDP disappointments lead the 10 year Treasury yields to fall – however, recently the 0.2% growth caused yields to rise. What are your thoughts?
Tom: There are a lot of factors in play, so it’s hard to single out any one item as precipitating the rise in yields – however, in the current environment, a GDP disappointment gets players to thinking that the Fed will delay hiking rates, which can be seen as allowing inflationary pressures to continue to build in the system.
What questions would you like to ask Tom?