HomeBriefings – Foreign Press Centers...Wall Street Series: Michael S. Hanson, JP Morgan

# 									Wall Street Series: Michael S. Hanson, JP Morgan							

FPC Briefing

Michael S. Hanson, Executive Director and Senior Global Economist, J.P. Morgan Chase and Co.  

Tuesday, February 23, 2021 at 3:00 p.m. EST

New York City, N.Y.

February 23, 2021

## 								Summary							

        -  This briefing is part of a series organized annually by the New York Foreign Press Center to give exclusive access to Wall Street experts. Several briefings will explore the U.S. economy over the next few weeks; we ask that interested journalists RSVP to each briefing once the media advisory announcing each event is released.  This is the first briefing in this series featuring a briefer from J.P. Morgan Chase and Co. 

**NEW YORK FOREIGN PRESS CENTER, 799 UNITED NATIONS PLAZA, 10TH FLOOR** (Virtual)

**MODERATOR:**  Great.  Well, good afternoon and welcome.  This week’s Wall Street Series features two distinguished economists from JP Morgan, and today I am delighted to introduce Mr. Michael Hanson.  He’s an executive director and senior global economist at JP Morgan.  And Thursday, we will hear from Mr. Luis Oganes, who is a managing director and head of currencies, commodities, and emerging markets research.

And now, as the senior global economist at JP Morgan, Mr. Hanson conducts current quantitative and thematic research on global economic and policy issues.  He authors the firm’s daily economic briefing publication and is a regular contributor to its global data watch.

Today, Mr. Hanson is going to provide a market outlook for 2021, and following his remarks there is going to be a question-and-answer session.  This briefing is on the record.  The views expressed by briefers not affiliated with the department or the U.S. Government are their own and do not necessarily reflect those of the State Department or the U.S. Government.  Participation in Foreign Press Center programming does not imply endorsement, approval, or recommendation of their views.  We will post the transcript on – of this briefing when it’s ready at our website at fpc.state.gov.  If you publish a story as a result of this briefing, we ask that you share it with us.

After Mr. Hanson’s prepared remarks, we will open the floor for questions.  If you have a question, please go ahead to the participant field and virtually raise your hand and wait for me to call on you.  If you are experiencing audio issues, you can also submit it in writing in the chat box, and I’ll read it aloud.  And we just ask that you share your full name and outlet when you ask your question.

And with that, Mr. Hanson, it’s over to you.  And thank you once again.

**MR HANSON:**Great, thank you, and welcome, everyone.  It’s a pleasure to have the opportunity to speak with you today.  So I’m going to spend a few minutes talking about our views around the global economic outlook for 2021, talk a little bit about our base cases and some of the risks, what we’re seeing in the data and what we’re expecting from policy, and that, hopefully, will set us up perhaps for some questions during the question-and-answer period, as Daphne mentioned.

Okay, so with that, let me just start by pointing out that we had the largest contraction of the global economy, over 3.5 percentage points, in 2020 as a result of the pandemic shock from COVID-19, the largest decline in about three-quarters of a century.  So that’s obviously a very significant shock.  It was – of course, involves a very significant cost in terms of loss of lives globally.

But it does look like it’s going to be followed by a very strong rebound.  We have a fairly optimistic view that the combination of getting past the worst of the pandemic, being able to reopen economies as vaccinations become more widely available, will allow the global economy to expand at something on the order of about 6.5 percent this year, which would be another record over a number of decades, probably about a five-decade record pace of expansion.

Now, in the context of that, there is going to be some interesting dynamics.  The first quarter is probably looking a little rocky, but we do think things will improve as we get into the middle of the year.  There’s a lot of variations across regions and across sectors.  So, for example, the manufacturing sector globally is doing a lot better than the services sector, which is perhaps not surprising given the nature of the kinds of lockdowns that are put in place to try to prevent the spread of the virus.

And we’ve got interesting implications in a lot of people’s minds now on what’s going to happen on the inflation front.  And just to kind of give a quick preview, the bottom line there is we’re seeing a lot of noise in the data right now, some surprises to the upside, some surprises to the downside.  We are expecting that particularly in some of the developed markets we’ll see some temporary higher inflation rates than we’ve seen in a little while, including in places like the U.S. and the euro area.  We’re going to get inflation much closer – if not even a little bit above – central bankers’ official targets, but those will largely be due to transitory factors.  So we say that you want to fade kind of the near-term noise but keep an eye on the underlying trend.  We do think there’s an underlying trend towards somewhat higher inflation but not dramatically so, and outside of maybe a handful of central banks in some of the emerging economies, we expect the vast majority of central banks to remain in their accommodative stances that they’re in today.

Okay, so that’s kind of the basic background.  Let me kind of run through where we are, where we think we’re going, and talk a little bit about the risks.  So as I mentioned, right now we had a pretty weak 2020, but it’s really a tale of two halves.  I mean, you had substantial double-digit contraction in global GDP in the first half of the year and then a double-digit expansion in the second half of the year.  You had really strong growth in the third quarter as economies reopened, and that even as we had what you might characterize as a global second wave or in some places a third wave of the virus take hold, and a number of countries adopting relatively stricter containment measures on individuals and firms, particularly in places, for example, like Europe.

Okay, what is interesting about this dynamic is, having observed what happened in the second quarter where you had really strong hits of growth as economies locked down, we had anticipated a decent-sized hit in the fourth quarter once the second wave came into place and you had, again, governments taking kind of strong actions to try to control the virus.  Okay.  What actually happened is that growth in the fourth quarter was quite a bit better than we had anticipated, and so we have ended up revising up our fourth quarter growth rates on an annualized basis by something on the order of about 6 percentage points over the last few months as the data came in and revealed that there was not nearly as much damage to the economies as we had expected.

I think that reflects in part the fact the lockdowns we saw were a little more targeted than the initial set of lockdowns we had back in March and April of last year, and also that firms and individuals have learned in some sense to sort of deal with them a little bit better, find ways to adjust their behavior so that it’s not so damaging to the economy.

So this is relevant for thinking what’s going to happen going forward because there is certainly some risk that we may have to have lockdowns in place for another few months.  It’s possible that you could get yet another wave of the virus, particularly if it turns out that one of the variants becomes widespread and it results in a more contagious form of the virus taking hold.  That’s not our base case; our forecast does not assume that that’s going to happen, but it certainly is a risk we’re keeping an eye on.  But the good news is you don’t have to basically run the economy into the ground to actually bring down infection rates.  There are ways we’ve learned to do that that involve much smaller losses to production and output and consumption that we saw in the spring of last year.  Okay.

Now, as we revised up that fourth quarter of last year pretty dramatically, we did bring down the first quarter a little bit but not nearly as much, a couple percentage points.  And part of the reason for that is we think that maybe the strongest impact of the lockdowns might actually have been felt in January as opposed to, say, November or December.  And so that forces some of that impact to still be felt, just not felt in 2020, but in early 2021.  Okay.

There also are places where they’re still struggling to get the virus under control, in places that are – a number of places that are having slower than I think anticipated ramps up of the introduction of the vaccines.  And so each of these factors is leading to us to be a little bit cautious on growth for this quarter.  We’re looking for growth at only around 2 percent or a little bit, give or take, for the first quarter.  But then by the time we get to the second quarter, we’re looking at – these are on an annualized basis, by the way – by the time we get to the second quarter, we’re looking for growth rates that are going to be quite strong, double digits in the U.S. and Europe.  We’re looking for global growth to run above 8 percent for the second quarter and about 7 percent annualized for the third quarter.

So this is driven by this reopening dynamic, that once we get past the worst of the outbreak – and it does look like, by and large, we’ve seen some really significant declines in the pace of new infections around the world in the last several weeks – assuming we can build on that success, we do think you’ll be able to see economies start to reopen in March and April, and that will really set you up for a nice balance in the second quarter, much like we had last year.  Okay.  Of course, last year was a much sharper decline and rebound.  We had almost 40 percent – I think it was like 38 percent annualized growth in the third quarter of last year.  We obviously won’t see anything nearly that large this year.  But you’ll still have a very boomy economy in our view.

And then as vaccinations continue to be rolled out, you’ll see that add continued support, particularly for the services sector.  So I mentioned earlier that we’ve seen this dichotomy between the manufacturing sector, which has not been hit nearly as hard in the second wave – it’s continued to largely be fairly resilient – and then the service sector, which, not surprisingly, most restrictions are on personal services activities: dining out, going to sporting events or entertainment, things like that.  And that’s obviously having an impact on the service sector, as, of course, are travel restrictions.  Okay.

We do think that over the course of this year and into next year, those will gradually be eased, that with greater vaccination rates, people will be more comfortable engaging in service sector activities, and that will allow for a further recovery of the global economy.  Now, in that context, we have already seen some pretty strong numbers on consumer demand for goods throughout the – much of last year and into this year.  There’s been a little bit of a slowdown, perhaps, in January.  Some of that is around the fact that you had some concerns about fiscal support for unemployed and other individuals in the U.S. fading, and so you saw some really significant swings in the U.S. data.

But one of the other things that is supporting our view is we have seen some really significant fiscal and monetary policy support, both last year and continuing into this year.  And it’s particularly true in the U.S., where we’re getting, we think, something in the vicinity of a $1.7 trillion additional fiscal support package later this quarter, probably sometime in March, to help extend unemployment benefits, to give additional checks to households, support for medical facilities, for antivirus efforts, for state and local governments, et cetera.  Okay.

And you have a number of other countries that have put in place pretty sizable fiscal supports.  Some of those coming off.  Some are coming off more quickly than others.  We do think, for example, China is moving more rapidly to try to normalize policy than some other economies, but then again, the Chinese economy has already had pretty much a full V-shaped recovery back to its pre-pandemic growth path.  And part of that is because they were sort of first in, first out in terms of the dynamics of the virus.  But also they, like a number of other countries in the Asian sphere, have benefited quite dramatically from a big boom in manufacturing exports, right, particularly the tech sector.

So one of the consequences, perhaps unanticipated initially, of the impact of the COVID-19 outbreak is a big move towards remote work and remote schooling arrangements, and that has led to a big boost in demand for technology products, including the stuff we’re using right now.  And that’s been a big beneficiary for a number of these Asian economies, including China, right?  The – so China’s had this large recovery, it’s been very much sort of a goods-oriented story.  We do think the Chinese economy over the course of this year will transition more towards a gradual recovery in their own service and consumption sector, and we’ll see some pulling back of the really significant credit and fiscal support that you had last year.

The rest of the world is probably not going to have quite as strong a recovery, and so you’re still going to have some slack, if you will.  You’re still going to have more people unemployed than you perhaps had before the outbreak began.  You’re still going to have some underutilized resources.  The only other economy that we think is really going to get close – in fact, will probably even have a somewhat tight economy as we get to the end of this year – is the United States because of the big fiscal policy that I mentioned earlier really helping to support demand and activity.

So when we go past China and the U.S. as the main economies, what we’re looking for – again, kind of full V-shaped, back to pre-pandemic path growth rates – we’re looking for output gaps at the end of this year somewhere in kind of the 1-3 percent range for a number of countries in Europe, both Eastern and Western Europe, and some of the emerging Asian economies.  We’ve got somewhat larger output gaps elsewhere, and particularly in Latin America, which, again, I flagged earlier as a place where we are concerned that the peak of the virus has happened a little bit later.  They’ve struggled to get it contained and they’re, right now, it looks like a little bit slower in terms of the pace of getting vaccinations out.  And so that just delays how fast the recovery is in that region in our forecast vis-a-vis some of the others.  Okay.

So one of the consequences, then, of having less than complete recoveries around the global economy is that you’re not likely going to create the environment that’s going to lead to a sustained, significant upward move in inflation.  Okay.  So inflation’s on everyone’s mind right now, there’s a lot of talk about it in the markets.  You had, for example, Fed Chair Jay Powell this morning testifying before Congress where he said he thought that any pickup in inflation we had would neither be large nor persistent.  And I think that that’s generally consistent with our own views.

As I mentioned, we do think that you’re going to see a fair bit of volatility in the inflation outlook over the next several months.  So for example, you’ll have so-called base effects, where year-ago inflation rates will look very high because the base you’re comparing against from last year was very low.  When you initially had the lockdowns, you had some pretty big collapses in both goods and services prices around the world.  And while goods prices did recover relatively quickly, and in some places even jumped a fair bit as you hit up against, say, bottleneck pressures and some short-term supply constraints, services prices have generally continued to remain fairly weak and I think, again, that’s a reflection of this idea that labor markets are still dislocated in a number of economies around the world, and that they’ll recover more gradually.  Okay.

And so even though we are seeing, as I mentioned, some signs of inflation picking up, much of it is these sort of – either base effects or some technical changes in the way in which industries are constructed, some changes in the timing of when sales are recognized so it messes up with the seasonal adjustment on a short-term basis, things like that that are going to lead to some higher numbers in the near term.  And as I mentioned, you could very easily see headline if not core inflation rates get close or even a little bit above some of – some central banks’ inflation targets.  But these won’t persist in most economies.

There are some emerging market economies that are seeing stronger inflation and have already taken moves to try to bring that down, so Turkey comes to mind.  We are expecting we’re going to get rate hikes a little later this year, for example, in Brazil.  But generally speaking, central banks are still looking for more inflation.  We’re not seeing dramatic pickups in market measures of inflation expectations.  We’ve seen some modest rebounds off of levels that were very depressed after the pandemic hit.

So we think that by and large the trend is to the upside, but it’s modest, and some of the peaks that we see or will see in the coming months will probably not be sustained.  And so, as a result, we think that central banks will continue to remain fairly accommodative, most notably the Federal Reserve, the European Central Bank, and the Bank of Japan.

Okay.  So with that as kind of – it was about 15 minutes or so as an outline of our views, and I touched on a few of the risks, I’m happy to turn it over to take some questions now.

**MODERATOR:**  Thank you, Mr. Hanson.  We really appreciate those opening remarks.  If you have a question, please raise your hand in the participant field and wait for me to call on you.  Or you can ask your question in the chat room if you’re having audio issues.

Okay.  I have a first question coming in from Ms. Du.  Can you please introduce yourself and your outlet?

**QUESTION:**  Thank you very much.  This is Zhihang Du from Caixin, a national news outlet in China.  And my question is you mentioned that inflation in the U.S. is going to be – is going to be short for a short term.

**MR HANSON:**  Yes.

**QUESTION:**  But what about depreciation?  Do you think dollar is going to remain weak in the long term?  And how will that affect dollar investment especially in overseas markets such as China?  Because back in China there is a view that the dollar is weak, so a lot of U.S. investments – investors are going to Chinese market to pour dollar into the Chinese market.

**MR HANSON:**  Sure.

**QUESTION:**  That’s my question.  Thank you.

**MR HANSON:**  Sure.  Sure thing.  Yeah, so our base view is that you’re likely to continue to see some dollar weakness as kind of the Fed has been the most committed to trying to get inflation up and even run within an inflation rate above its longer run target for a while.  And so that most directly feeds into this idea that you’ll probably have some relative dollar weakness.

In the case of China, we think that the Chinese economy – obviously, the yuan has been strong of late.  We think that will continue in the near term because of China’s outperformance both in the sense that it’s got stronger growth and you’ve seen somewhat firmer interest rates there.  We do think that that should start to become less of a dynamic as we go forward over the course of this year.  And so that would potentially have some implications for international capital flows as well.

**QUESTION:**  Thank you.

**MODERATOR:**  The next question goes to Katharina Kort.

**QUESTION:**  Yes, hi.  This is Katharina Kort with the German business newspaper Handelsblatt.  I have a question about the stimulus package.

**MR HANSON:**  Yes.

**QUESTION:**  You mentioned that thanks to the vaccine we are already on a good way to recovery.  The stimulus package will be if so in March will be approved, so we go into the second quarter when you already have the economy recovering.  Don’t we risk of being procyclical and therefore overheating the economy?  What’s your view on that?

**MR HANSON:**  Well, it’s a great question.  And one of the reasons we think that we’re going to have such strong growth in the second quarter is that we built this fiscal package already into our assumptions, right?  And I think what’s important there is that we’re not expecting the economy overheating by the time the second quarter rolls around, right?  We’re going to still going to have – right now, we’ve got more than 10 million fewer Americans employed than we did a year ago, and it’s going to take some time to close that gap in the labor market.

So our expectation is that the COVID relief plan is basically supporting the recovery and importantly is precluding, I think, some potential sources of scarring in the economy, right?  So one is that you could have a situation where people lose benefits, drop out of the labor market completely, and find it much more difficult to come back, right?  That actually is potentially an environment that is more inflationary because it’s a reduction in the supply of available labor, right?  But it’s also – obviously will have demand implications as well, and it’s obviously something that’s undesirable for individuals who’ve experienced that dynamic.  So part of the design of the plan is to avoid that outcome.

There’s also support for businesses, particularly for small businesses.  Large businesses have been readily able to access the capital markets, whether it’s through equity or debt, to kind of tide themselves over and take advantage of low interest rates.  For smaller firms, that’s been a little more challenging, so you’ve got extensions of things like the PPP program designed, again, to preclude large-scale shutdowns of smaller firms, particularly in, like, the hospitality and restaurant sector that don’t have a large backstop of capital on hand to keep themselves running for the next couple of months until things really start to normalize more fully, right?

So I think that that’s kind of the expectation of how this relief package is going to play out.  And so you’ve seen this big debate, at least in the U.S., about should we even call it a stimulus package, because it’s not really designed to boost demand per se; it’s designed to support the supply side of the economy, keep workers and firms engaged, until we’re at a point where demand returns more naturally.  And I would imagine there’s probably a decent amount of pent-up demand in the economy, right, that could lead to some temporary price pressures, but we don’t that those are going to be sustained over a year or two.

**QUESTION:**  Thank you.

**MR HANSON:**  Certainly.

**MODERATOR:**  Let’s see.  Please raise your hand in the participant field or type your question in the chat box if you would like to ask Mr. Hanson.  Okay, this question comes in from Gerben, Gerben van der Marel, who works for a daily in the Netherlands:  “The EU fiscal support is around half the size of that in the U.S.  Some say Europeans look enviously across the Atlantic.  They worry that the euro zone will once again fall short of the U.S. in terms of policy action and results.  Do you expect another a few years of European growth underperformance relative to the U.S.?”

**MR HANSON:**  Well, we forecast through next year, and as I mentioned, we do have the U.S. basically closing its output gap by the end of this year.  But we have the euro area, if I remember correctly – let me double check my numbers while I’m speaking – but if I remember correctly, about 1.5 percent is the output gap, yeah, that we have the end of 2021 for the euro area.  We think that those continue to close over the course of next year.

But I do think there’s a couple of important differences.  One is the U.S. support is very direct spending and grants to whether businesses like we talked about in terms of the PPP or unemployment insurance.  A lot of the programs in Europe, particularly the country programs, are more of the form of contingent liabilities, so they’re not maybe directly on the books in exactly the same way, but things like, for example, short work subsidy programs that have allowed the unemployment rate in Europe to remain much less volatile than the big jump we saw in the U.S last year, right?

So I think the nature of the fiscal plans are somewhat different.  I think it’s probably true that on net we are looking for close to neutral fiscal support to GDP in the euro area next year, and we’re looking for the U.S. fiscal program to probably add a percent or two to GDP.  So there is that difference, and I think that’s reflected in this difference of how quickly the economies are likely to close their output gaps.

And that does have an implication for the inflation dynamics as well.  I mean, we are expecting, as I mentioned, that the Fed is going to see rates close to the 2 percent target.  The ECB has been saying, for example, they’re still only forecasting inflation not even getting to 1.5 percent.  So that’s quite a bit below their 2 percent but a little bit below target that they have right now.  So I think you’re going to continue to see that dichotomy remain between the U.S. and Europe as well.

**MODERATOR:**  Thanks so much.  Let’s go next to Arnaud.  Arnaud, can you unmute yourself and introduce yourself and your outlet, please.

**QUESTION:**  Hello.  Yes, Arnaud Leparmentier speaking, French daily Le Monde.  Sorry, my video does not work.  I wanted to have your opinion about the minimum wage debate in the U.S.  Do you think that it will be increased?  And what will be the impact of  – on the growth demand side and supply side as to competitivity for the United States?  What is your assessment of this situation?

**MR HANSON:**  Yeah, so as I mentioned – and it might have gone by quickly – we’re looking for the final plan to be adopted, 1.7 trillion.  The Biden plan has 1.9 trillion.  And one the things that we think will not be included in the final plan is the minimum wage increase at the national level.  You’ve already had a handful of more centrist Democrats express some reservations about it, and so we think that it probably is something that will end up not being part of the package in our baseline case, right?

The economics of the macro impacts of the minimum wage is – I don’t know if it’s – I think there’s a lot of disagreement amongst economists right now.  I would say my reading of the evidence, in my own attempts at looking at this in earlier times when this came up, is that there is very little macroeconomic implication, because it actually touches a relatively small share of the labor force in the U.S.  It will certainly have implications on individual firms and industries and potentially regions, but that tends to be kind of washed out at the macroeconomic level.

Now, obviously, a move from $7.25 to $15 an hour in one fell swoop could be different.  I mean, that’s a pretty large move.  But again, base case that’s not actually likely to happen.  We don’t think that politically it’s going to turn out to be feasible in this round.

**QUESTION:**  Okay.  Thank you.

**MODERATOR:**  We have another question from Gerben.  He is asking about a possible “Great Reset”:  “Governments around the world seem to see this crisis as a major incident.  We might just continue where we left off in January 2020.  The lion’s share of the money that governments worldwide have now spent to deal with the corona crisis has gone from maintaining the existing economic structures, IMF says.  Or do you expect a fundamental reform of the economy – in short, a so-called ‘Great Reset’?”

**MR HANSON:**So I guess I would have to have a little better sense of what sort of changes one has in mind.  I think that the – there are going to be some interesting changes that result from this, but I don’t know whether that would be what you would think of as a “Great Reset” or not.

So, for example, I mean, I do think that you’re probably going to see some more long-term shifts towards flexible work arrangements, particularly in some of the developed economies.  I think that you’ll probably see some further investments in monitoring for these sorts of risks in – some probably greater discussion of how environmental and climate issues interact with these sort of health concerns, and that may lead to greater coordination, particularly with some of the changes we’ve had in government leadership recently, for example in the U.S.

Beyond that, I’m not – I’m not really – I’m not sure exactly what you’re asking, but I don’t know.  I guess I’m not really – I guess I couldn’t speculate on that.  So —

**MODERATOR:**  Gerben, if you’re able to unmute yourself and elaborate, you’re welcome to.

**QUESTION:**  Yes, well, the “Great Reset” is a – well, mostly is coined I think by the World Economic Forum, and it’s – well, most of the time it’s used for the, well, green revolution, so to say, climate-friendly approach towards the economy.  While you mentioned that shortly, but maybe you could elaborate a little bit more on that, if you expect a major restructuring, actually, of the economy, or is it just business as usual, so to say, after the crisis?

**MR HANSON:**  So I would have to say, if I focus in the U.S. to start, I think there’ll be some meaningful moves in a direction towards a set of policies designed to try to address climate concerns and try to lead to some more sustained reduction, say, in carbon footprints.  But my suspicion is these are going to be more evolutionary than revolutionary, quite frankly.  They are going to face some political pushback, and I think that will also help keep them more evolutionary.  It is not at this stage our base case that we’re going to have some sort of Green New Deal be adopted in the U.S.  We do think that there is scope for infrastructure spending, perhaps a large infrastructure plan later this year or next year, that would work out over many years, say over a decade, that would have aspects of it that would be, I guess, consistent with what you’re describing as a “Great Reset”.

But again, I would be – I would be skeptical of something that suggests that we’re going to – and again, I guess it depends what you mean by fundamentally change.  But the idea that, for example, the U.S. is not going to continue to have fracking and have a significant contribution of petroleum sector for energies and plastics and whatnot, I think it’s very unlikely that that would go – be changed in some really fundamental way.

**MODERATOR:**  Thank you very much.  We have time for one or two more questions.  If you do have a question, feel free to raise your hand in the participant list or type your question in the chat room for me to read out loud.  Arnaud, please go ahead.

**QUESTION:**  Yes, here I am, back.  Sorry, still no video.  Yes, can you elaborate on – you didn’t speak so much on the oil markets, and so how do you see the evolution and what will happen to the smaller shale producers in the U.S.?

**MR HANSON:**  So I don’t actually have a figure forecast on that.  That would be something that one of our sector analysts would have much more insight onto.  Our general expectation is that as the global economy recovers, you’re going to see upward demand on commodities in general, and that will include energy commodities.  And so all is equal, that would be something – presumably favorable to those suppliers, but there’s a lot of other intra-industry dynamics that I’m sure are going on that I probably don’t have a lot of visibility on, so I don’t have any particularly deep insight on that.

**MODERATOR:**  We have time for one or two more questions.  Mr. Hanson, do you have any closing remarks or statements that you wanted to make at this time?

**MR HANSON:**  I see there are some things popping up on the screen.  I don’t know if —

**MODERATOR:**  Oh, you are right.  Well, I apologize for that.  Thank you for catching those.  I wouldn’t want to close the briefing without calling on these journalists.  Let’s go to Ines.  Ines – she can’t raise her hand, but she has a question.

**MR HANSON:**  Sure.

**MODERATOR:**  There she is.

**QUESTION:**  Thank you very much.  It’s Ines Zoettl from German magazine Capital.  What is your take on the American labor market?  The employment rate has gone down seriously, but a lot of people say that the employment and the jobless rate is higher than you can see.  So do you expect the U.S. to return to full employment, and when?  And will there any – be any structural changes?

**MR HANSON:**  Yeah, so that’s a great question, and I think there’s a fair bit of uncertainty on exactly how it’s going to play out.  In our forecast, we do have some continuing improvement in the labor market as the year goes on.  It’s kind of unavoidable when you’ve got the kind of growth rates that we have in our forecast.

We’ve noticed a couple of things.  One is that the hit has been heavily concentrated in services, and that has meant it’s been heavily concentrated in workers with characteristics – for example, on average somewhat lower skills and lower education levels.  On the one hand, that might make it – you’d think make it a little bit harder for them to find work.  On the other hand, because there are relatively low-skilled jobs, it may be that filling those will actually turn out to not be so difficult.  There’ll be a pool of workers willing to take those jobs.

Another interesting phenomenon that we’ve seen, not just in the U.S. but in Europe as well, is that women have disproportionately bear the brunt of the reduction in employment.  There is obviously very different approaches to labor market policies for things like parental leave and childcare support between the U.S. and Europe that is probably going to lead to somewhat slower recovery of women’s employment in the U.S. vis-a-vis Europe.

Overall, we have, like I said, the output gap closing by end of this year.  I think we still have a bit of a gap on the employment side in our forecast.  So the economists like to talk about this relationship called Okun’s Law between growth and unemployment.  That breaks down a little bit in our forecast.  That has happened before.  That’s kind of a reflection of shifts in productivity and other factors.  So overall, the U.S. labor market does improve and it improves a fair bit in our forecast, but we probably don’t get back to full employment until sometime next year in our forecast at the earliest.

**QUESTION:**  Okay, thanks.

**MR HANSON:**  Thank you.

**MODERATOR:**  The next question comes in from Anna-Sofia Berner.  She writes for Helsingin Sanomat of Finland:  “Are there any forecasts yet when the U.S. Government would or could start paying the debts that resulted on the stimulus?”

**MR HANSON:**  I guess the short answer is no.  (Laughter.)  So there’s obviously been a lot of talk from Powell this morning, Fed chair on down, across both political parties on the need to have some sort of medium-term plan to help gradually bring down the debt-to-GDP ratio.  And, of course, you can do that either by reducing the debt or by raising GDP faster than the pace of growth of debt, or some combination thereof.

I think the real focus for a lot of policy makers and economists right now is that so long as interest rates remain relatively low, the debt carrying costs of this additional debt will not be particularly problematic for economies, and that will allow for fiscal to play a bigger role than it might have in an environment where interest rates were quite a bit higher than they are today.  So that’s obviously something that we want to keep an eye on, on what those debt servicing costs for governments are going to be going forward.  But I don’t know that there’s any sort of concrete medium-term plan in place in the U.S. Government to tackle that, and I imagine there’s probably some pretty significant differences of opinions across the political parties in the U.S. about what would be the right way to do that.

**MODERATOR:**  I don’t see any questions in the chat room and I don’t see any hands raised, so I think with that, are there any closing statements that you wanted to make?

**MR HANSON:**  Only that I appreciate the opportunity to speak with everyone, and thank you all for the questions, and look forward to maybe have the opportunity again soon – sometime soon.

**MODERATOR:**  Thank you very much for your time.  We really appreciate it.  As a reminder, today’s briefing was on the record.  We will share the transcript as soon as it’s possible.  It will be posted on our website as always.  We also invite you to join us on Thursday for a briefing with Mr. Luis Oganes, also with JP Morgan, and if you haven’t already, you’ll be seeing an invitation for that event shortly.  So again, thank you very much, and have a good day.

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