GAME Forum X experts see different paths for global economies
March 26, 2021
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March 26, 2021
In the U.S., the Federal Reserve’s persistently low interest rates, combined with massive stimulus packages, have given the American economy a head start. But there may be consequences down the road for those policies, some suggest.
“History isn’t kind on fixing inflation after it happens. It’s messy,” said Ethan Harris, head of global economics research for Bank of America Global Research. “The problem becomes the recovery in the economy comes so fast ... that the risk is there’s an accident at the end. It’s like driving down the road at 100 mph as you approach the intersection, and the yellow light goes off, and you go through the intersection anyway.
Pump the brakes. Step on the gas. Check your mirrors. These are the decisions that affect the world’s economies and how they interact in the global marketplace.
This year’s virtual GAME Forum X on March 25 and 26 included 17 panel discussions about the global economy, investment strategies, portfolio management and risk, financial technology, women in finance, and other topics. More than 60 panelists and keynote speakers representing 48 of the world's leading financial companies shared their thoughts, including Bank of America, J.P. Morgan, Citibank, T. Rowe Price, Goldman Sachs and Charles Schwab & Co.
Overall, nearly 1,700 students and their faculty mentors from 146 schools registered for GAME X Forum. Among the colleges and universities that participated in the two-day event were Rice, Virginia, UCLA, Boston College, and Washington University in St. Louis. President Judy Olian, former dean of the UCLA Anderson School of Management, gave the opening remarks for GAME Forum X.
“With us are some of the top minds and experts in the worlds of finance and investment, giving you access to insights and advice you won’t find anywhere else,” Olian told attendees. “But one of the things that makes this conference truly unique and distinctive from other events is that it’s organized and hosted by students. You are the future generation of leaders and titans of the financial world, and the GAME Forum is a key part of developing that future success for you.”
The GAME Forum X began with a discussion about the U.S. and global economies, which have been shaped by COVID-19, recovery and stimulus strategies, and inflation concerns.
Harris was joined on the panel by Lisa Emsbo-Mattingly, CBE, director of research, global asset allocation for Fidelity Investments, and Catherine Mann, managing director and global chief economist for Citibank. Deborah Solomon, economics editor for The New York Times, was the moderator. The panelists were introduced by Quinnipiac MBA candidate Austen Lui, chairman of GAME Forum X.
Harris pointed to the unprecedented economic measures currently taking place in America. “The real story here is the U.S. We’ve never seen anything like they’re doing in Washington right now, both the Fed and the fiscal authorities,” Harris said. “The fiscal stimulus that’s going through the economy now is about three times normal as a share of GDP. And, what’s really striking about it is, there’s no let up. ... This is very unusual, both by historic standards and by global standards. We’re actually looking for 7% GDP growth this year.”
Emsbo-Mattingly agreed, adding context through a historical lens. She drew insight from the U.S. economy in the years following World War II. But while post-war spending and investing grew, so did inflation: Consumer Price Index inflation ballooned to 17.6% between June 1946 and June 1947.
“What we saw in 1946-47 was a dramatic expansion of household spending and spending on household goods. We saw the corporate sector reinvesting, and we saw extremely strong GDP growth,” Emsbo-Mattingly said. “But we also saw extremely strong inflation growth. I don’t think we’re going to get the inflation rates that we got in 1946-47 ... but I do think that we’re going to have extremely positive GDP growth and that not only helps the U.S. economy, but globally, this is going to be a highly stimulative environment, but with a lag.”
The timeline and trajectory are different for the U.S., Europe and China, the world’s largest economies, Mann said. Although 2021 is widely projected to be a year of strong growth in the U.S., that could change in 2022.
“This is when the U.S. starts — maybe — to have a bit of a pullback from the massive fiscal impulse we’ve been looking at,” Mann said, adding that Europe might then be in a position where private investment and fiscal policy can finally stimulate that economy.
Still, the U.S. is flexing a stronger economic outlook than its global counterparts in 2021.
“The reference to vocabulary is important here: Are we in a rebound or are we in a recovery?” Mann asked. “A rebound just says you get back to a pre-COVID level of GDP, but you don’t make up any of the losses. When we look at our base case for the global economy, there’s just a struggle to get back to the pre-COVID trend by 2024. There’s not any recovery.”
As a result of robust stimulus programs, the U.S. is poised for both a rebound and a recovery of the losses associated with COVID, Mann said. But could history repeat itself in the U.S. with soaring inflation like it did in 1946-47?
“Some people are afraid of inflation as a consequence,” Mann said. “We have to think very carefully about taking a chance on inflation in order to actually get to recovery. Other countries are not doing this, so the global economy as a whole does not see a recovery.”
Another panel, on global markets and investment strategies, featured these movers and shakers from the financial world: Jimmy C. Chang, CFA, chief investment officer, Rockefeller Global Family Office; David Kelly, CFA, chief global strategist, J.P. Morgan Asset Management; Eric Nierenberg, chief strategy officer, MassPRIM; and Liz Ann Sonders, senior vice president and chief investment strategist, Charles Schwab. Peter Spiegel, U.S. managing editor of the Financial Times, served as moderator, and MBA student Max Fortier of QU introduced the panelists.
Spiegel asked the panelists how the continued reopening of the U.S. economy, as more and more people are vaccinated, will affect the market. Sonders said the services industry — hotels and airlines, for example — will continue to rebound, but she thought that pent-up demand for goods has been robust and met.
“Investors need to go back to the tried-and-true diversification across asset classes. Portfolio rebalancing makes sense — not all in or all out, but staying in gear in reacting to what the market is doing … versus trying to anticipate what the next [short-term] trend will be,” she said.
Chang fielded a question that focused on inflation. He predicted that 2021 will be a year of two halves. “For the first half, we are looking at the best part of the business cycle and a very bullish environment, thanks to the good vaccine rollout fueling pent-up demand for goods and the injection of a massive amount of stimulus money into our economy,” Chang said.
He added that at some point, inflation pressure will begin to rise, with bond yields ticking higher, and potential tax hikes toward the second half. “All those factors will make the second half trickier with more volatility.”
Kelly agreed with the bullish prediction, citing President Joe Biden’s $1.9 trillion stimulus plan, which he characterized as front-loaded between now and the end of September and primarily directed at lower- and middle-income households. “More than half of the households are really income-constrained, robbing Peter to pay Paul, and there is a lot they want to do and can’t because they frankly don’t have the money,” he said.
“If you give these households extra cash, they will spend it, so there will be a surge in demand for goods.” Kelly said increased bookings on airlines and in hotels and a return to dining out “will put a lot of oomph into the economy” and predicted growth of more than 7 percent this year as the country gets back to normal. He noted that Europe is a few months behind, with vaccine and herd immunity, but will catch up, and he thinks China will benefit as well.
Kelly also forecast 2- to 2.5% inflation by year’s end, and a rise in long-term interest rates fueled by a surge in demand for things many people did without, including clothing, home goods, and dentist and doctor visits.
Panelists varied on their opinions on whether Congress will raise taxes. “As far as a tax increase, this is a world where people don’t care about deficits — you don’t hear that much about it anymore,” said Kelly, who does not see an appetite for such a move.
Nierenberg agreed with Kelly that “the economy will run very strong, perhaps too hot to some degree.” But he and Chang think a tax increase to balance the federal budget is inevitable, and that corporate taxes will increase.
“I also look at the options markets closely, and I think the thing we’ve seen more recently is interest rate volatility being much higher than equity volatility. That can pose problems in a lot of areas,” Nierenberg predicted.
Before the session began, Professor Osman Kilic, forum director, presented Kelly with the 2021 GAME Hall of Fame Award in appreciation of his longtime participation in the forum.
Quinnipiac alumni who had been involved with the GAME Forum as students discussed “Life in the Workforce” during another session. They offered advice to current students about learning from colleagues and finding the best way to contribute.
“Anytime you have a question when you’re going to your manager, or someone more senior, or even just one of your fellow colleagues at the same level, it’s always good to have a potential solution,” said Peter Falcone ’13, an investment banking associate at J.P. Morgan. “It helps to show that ‘A’ you’re correct and you know the answer, and ‘B’ that you’re thinking creatively about the answer.”
For Megan Martucci ’18, MBA ’19, a senior financial analyst at Henkel, it’s important to both listen and participate in conversations at work.
“Don’t be afraid to speak up,” Martucci said. “It’s easy when you first start your job to hear what everyone says and do exactly what they’re asking for. But if you have a better idea or a different perspective, definitely speak up and see if maybe that is the better option.”
The final keynote panel of the day addressed global portfolio management and risk. The speakers were Brett Amendola, senior executive vice president, National Financial Network; Jean LaTorre, CFA, executive vice president and chief investment officer, The Guardian Life Insurance Company of America; Sébastien Page, CFA, head of global multi-asset, T. Rowe Price; and Darren S. Wolf, CFA, global head of investments, alternative investment strategies, Aberdeen Standard Investments.
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