Brian Fogle recently completed his one-year term on the inaugural Federal Reserve Community Advisory Council, which had 15 seats for some 1,300 people interested. The group discussed economic circumstances of low- and moderate-income populations.
2017 Projection: The biggest economic issue will be the lack of upward mobility in earnings for the younger generations: “There’s too much disparity.”
SBJ: From your meetings with the Federal Reserve Community Advisory Council in Washington, D.C., what did you bring back to the Ozarks?
Brian Fogle: I learned so much about areas I don’t see so much affecting us, but in metro areas and on the coasts: (financial technologies) issues and innovation that I know will come here. But it’s really sort of disrupting traditional banking in many of those markets. I know that’ll be coming to the Midwest.
SBJ: How is fintech disrupting community banking?
Fogle: Federal Reserve studies showed 20 percent of small-business lending was online. That’s some disintermediation from the banking system. When you think about the ease of access – without bringing in tax returns and just to go online and put in information, it makes it real easy. But it also makes it sometimes too easy, because they look at cash flow, not at profit. As long as you have cash receipts, you just turn over your credit card receipts – 5 percent every day goes back to pay the loan. Sometimes the best thing a lender can do is say no. You don’t get that online, as long as you have cash receipts. What we’ve learned, especially in Southern California, businesses are stacking those. They’ll borrow X amount from one lender, go online and borrow X amount [from another] and before you know it, 20 percent of your daily receipts are going to repay a loan. The lender is assured as long as there are cash sales, but you’re not able to reinvest in the business. There is great innovation there, but when you’re not looking at repayment and long-term profitability, that can also be a hindrance to a business and lead to its demise.
SBJ: Gross domestic product grew by 3.2 percent in the third quarter – its best rate in two years – but it’s expected to finish 2016 at 1.5 percent. I’ve seen forecasts for 2.1 percent growth in 2017. Do you agree with that projection?
Fogle: I do. We think of a traditional good economy at 3 percent GDP growth. That’s usually healthy and sustainable over time. I’m not sure we’re going to get there for the next five or 10 years. I think low 2 percent. We’ll do better than we did the past year. There are some good signs out there: Home prices are actually better now than prerecession; and household net worth set a whole new record at over $80 trillion.
SBJ: Where do you see the unemployment situation headed?
Fogle: We hit 4.6 percent unemployment most recently; that is below the Federal Reserve’s projection of 4.8 percent as sustainable unemployment without inflation. The employment picture does look good. But what we’re seeing is a lot of underemployment.
We always talk about the American dream and upward mobility. In the early ’60s, 92 percent of 30 year olds made more money than their parents did at 30 years old. Today, that’s 50 percent.
SBJ: The economist we spoke to last year predicted the prime rate would increase to 4 percent. It’s currently at 3.5 percent. Is 2017 the year it moves to 4 percent?
Fogle: It’s been an unprecedented low-interest rate environment and it’s got everyone mystified. Even in 2012, there was a lot of talk about inflation coming back in. Part of that reflects the global environment; you had Europe slipping back into a mini recession and European banks lowering the rate; you had negative interest rates in some of the countries. I think in our country you’ll see a bump in rates. I anticipate a couple of bumps (this) year, so ending 2017 at 4.25 percent and maybe 4.5 percent.
SBJ: What are the main factors to economic growth in the United States this year?
Fogle: A couple of megatrends: No. 1, you’ve got the baby boomers, a huge mass of humanity working through the workforce that already started hitting retirement age and you don’t have replacement workers coming up. They’re going to be demanders of health care and a whole bunch of things but not productive. And then uncertainty – knowing what federal and state policies will be – the markets don’t like uncertainty.
SBJ: What do you see Donald Trump’s proposed tax cuts doing to the economy?
Fogle: We have a neighbor to the west that has been a great laboratory for us. (Kansas) went in and cut taxes dramatically, hoping that growth would more than make up for that. That has not been the case. Revenue has not been as good as ours in Missouri. And we saw under the (George W.) Bush administration that tax cuts did not stimulate the economy enough to overcome the lower federal revenues. I think in the short term, tax cuts usually stimulate, but in the long run you have to reinvest in infrastructure and people and that comes from public dollars. Over time, it’s hard to sustain tax cuts.
SBJ: What’s the biggest drag on the economy right now?
Fogle: The thing I worry the most about is the two economies we’ve created. The wealthy are getting wealthier because they own assets that appreciate – housing, stocks, financial markets – and the lower income don’t. In a growing economy, there is a disparity of wealth. That’s what I think we need to work on the most.
SBJ: How might that gap close?
Fogle: We have to invest in education. Early childhood education, I think, is the best investment you can make – and getting more folks with quality credentials and higher education degrees. There is a goal in our state to have 60 percent of our population with a quality credential or a post K-12 degree, and we’ve got to invest in our public institutions to be able to do that. It’s hard to do when revenues are dwindling.
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