EFFINGHAM — An economist cautioned local chamber members Friday that the current economy “may be as good as it’s going to get.”
“It’s a beautiful day and a beautiful economy,” said William R. Emmons, assistant vice president and economist for the Federal Reserve Bank of St. Louis. “You have probably seen consumer confidence numbers hitting all-time highs. But as an economist, I have to say on the other hand things aren’t always going to be this good.”
“In fact, I think we’re probably seeing about as good as it’s going to get, that is the bottom line I think,” Emmons added. “But, for a lot of reasons we need to be a little more cautious this year.”
Emmons was the featured speaker at the Effingham County Chamber of Commerce First Friday luncheon. In addition to his vice presidential duties, he serves as lead economist for the Center of Household Financial Stability and has been with the Federal Reserve since 1995.
“I do want to mention these are my own views and not necessarily those of Jim Bullard our president (Federal Reserve Bank of St. Louis) or anyone else in the Fed.” Emmons said.
Emmons characterized the U.S. Economy and Midwestern Illinois economy as being at peak performance.
“In fact, if anything we may be a little bit past peak performance,” Emmons said. “The unemployment rate is at the level that is close to ideal, that’s not zero necessarily, there is always some unemployment as people move between jobs.”
Emmons said the peak unemployment level is 5 percent and added it would be ideal if it stayed that level indefinitely.
“Unemployment is actually closer to 4 percent nationally and Illinois is slightly higher.” Emmons said. “It does look like the U.S. and our Midwestern economy is beyond that point, and that of course is what makes the Fed nervous.”
Emmons attributes low unemployment to the reason the Federal Reserve has increased the interest rates the past couple of years.
“It’s time to start tapping our breaks to slow down the economy,” he said.
In explaining why the Federal Reserve wants to slow down the economy, Emmons compared the economy to driving a car.
“It’s like driving your car a little too fast, you can do it for awhile, but the risk is you overheat the engine,” Emmons said. “That is the terminology you will be hearing more and more. Is the economy overheating?”
Emmons said symptoms associated with an overheating economy is inflation and problems in employment selection.
“It just makes hiring difficult.” Emmons said. “It’s hard to find people especially if your looking for a particular skill set or certain experience.”
“When we get to this point where we have used up the available labor resources, that can put restraints on growth,” Emmons added.
He said an overheating economy forces some companies to put the wrong person on the job because the right person can’t be found, which eventually decreases business productivity.
“I do think the rising interest rates are going to continue this year,” Emmons said. “If I had to point to a part of the economy that will reflect that or feel it the most, it would be housing and car sales.”
Emmons cautioned another recession is possible and could only be a year away.
“I think it’s likely to be very mild compared to the last great recession, because that was after the housing sector got way out of control, and I don’t think we have anything like that at this time,” he said.
However, Emmons said unique this time is the potential for some “serious policy mistakes,” referring to one this week.
“I think the tariff announcement was a huge mistake. This is reverberating around the world,” he said.
“There is discussion in Europe. There is discussion in Asia and the Western Hemisphere about retaliation,” Emmons added. “And this is a road we don’t want to go down.”
Emmons listed other potential risks that could get the U.S. into a trade war, including changes in fiscal and monetary policy, which are changes in taxes and government spending.
“In my judgment as an economist and Fed economist, the tax bill was a mistake,” Emmons said. “It was very poorly timed and in fact, it’s about eight years too late.”
“We’re already beyond full employment,” he said.