<ul> <li>What are the lasting macroeconomic implications of the pandemic?</li> <li>How will consumer confidence affect vehicle sales in the long term</li> <li>How to stress-test your portfolio for a recessionary economy</li> </ul> Presenter: Robert Dye, Senior Vice President & Chief Economist, Comerica Bank Moderator: Joey Pizzolato, Deputy Editor, Auto Finance News [toggle title="TRANSCRIPT"] <div class="transcript-scroll-box"> Joey Pizzolato 04:03 Good afternoon everyone and welcome to our second event of the day session nine policies and pathogens the US economy in the title of Coronavirus. This session is sponsored by PDP group. And as always we are grateful to PDP group for their support of this event. Now, here's a brief message from our sponsor. 04:23 At PDP services our core PDP Group Inc will provide value added services to the insurance and automotive finance industries, save clients money, minimize risk, and improve customer service. Joey Pizzolato 04:42 I'm Joey Pizzolato, deputy editor of auto finance news, and I'm excited to introduce our speaker today, Robert Dye Senior Vice President and Chief Economist at Comerica Bank. He leads the Comerica economics department, which provides research and analysis vital to America and its customers as well as business leaders and policymakers throughout the country. Robert provides commentary and research on the US economy in the economies of California, Texas, Arizona, Florida, in Michigan, America's primary markets. Robert is a former director of the National Association of Business Economics and as chairman of the economic Advisory Committee of the American Bankers Association. He is a past president of the economic club of Pittsburgh, a graduate of Marietta College, where he earned a Bachelor of Science degree in petroleum engineering. He holds a master's degree in natural resources from Ball State University, and a doctorate in energy management and policy from the University of Pennsylvania. Robert, thanks so much for joining us today. I turn the floor over to you. Robert Dye 05:52 Thank you, Joe. It's a pleasure to be here with you today and to talk about this very interesting economy that we're all living through the title slide, I hope you can see that now the American economic outlook. And what I'm going to do is I'm going to guide you through a brief PowerPoint presentation, and then we'll come back for some q&a with Joey, at the end of this. So the first slide here, just a reminder that the near term outlook is really up to a factor that's not economic at all. It's the spread of the coronavirus, pathogen through the global and US economy. And a reminder here that the real the limiting variable is going to be hospital capacity and ICU capacity. And are we filling those up? And will that require a real escalation and social mitigation policy here in the US, we all know what the result of strict social mitigation policy is, led to a historic decline in second quarter GDP, which declined to the 31% annualized rate. So I'm hoping we don't go back there anytime soon. But we have to say, and we have to admit the cases are going up now, in a number of states. So there's certainly a meaningful risk factor out there that we have to recognize in terms of the economic forecast. We're learning a lot in economics right now about about pathogens and how they impact the economy. We're also coming up with new metrics and how to measure this. And I thought this was a very interesting example of a new metric put together by the Federal Reserve Bank of Dallas, their us mobility and engagement index MBI. And what they do is they track cell phone data. And before we get worried about that, they make it very clear that it's anonymized data. They don't know the individuals that can identify them. But they track seven different variables with respect to cell phone data, how often have you left the house? How far have you gone? Did you go to work, things like that. And they put together this mobility index, which really tracks quite well, what we're seeing in the economy. And the reason why I like it, it's you're able to update it fairly quickly. And it's a high frequency indicator, weekly indicator we see on the left hand side here. From February, we'll call that normal. Going into the lockdowns in late February, early March, we see mobility, take a huge dive down, recover through the reopening in May into early June, and then stabilize at a somewhat low level. And we're seeing that pattern, we'll call maybe we'll call that a lazy V, I'm not going to call that a V shaped pattern it's going to be it's going to be an incomplete bounce back that lazy v pattern. We're seeing in a wide variety of data right now. I think this is a very good effort from the Dallas fed of coming up with new ways of measuring what's going on in the economy. So before I get into the forecast, I have to go through some real key some key assumptions. We always make assumptions when we're providing an economic forecast. But this time we're in Coronavirus, I have to make assumptions that are really outside my field of expertise, what's going on with the virus and what we expect in terms of social mitigation policy. So number one key assumption right now is we will not see a return to widespread that's a key word here widespread and strict social mitigation policies this year. If we do come back my expectation, we will see it on a state by state basis or perhaps even cities or regions but not widespread coast to coast this year. I could be wrong, but I have to make an assumption about that because it's such a big lever on the economy. I'm also expecting no large scale fiscal stimulus through the rest of this year. Now, even as I say that, and as we listen, there are negotiations underway in Washington, between In House Speaker Pelosi and Secretary Treasury mentioned, we've gone past these the self imposed 48 hour deadline from from the House Democrats, we're still talking. And we'll we're gonna have to see where this goes. Well, my assumption is right now, as we as we speak, that we will not see a fiscal package as a result of these talks before the election. And we probably won't see one until, until we get a clear winner, either way from the election, maybe early next year. Another key assumption the rehiring rate of furloughed workers somewhat less than 100 100%. This is a critical assumption, because we laid off a whole lot of people, millions of people last fall, excuse me last spring, and how many are we bringing back maybe on the order of 60, to 70%, but certainly not 100%. And that's going to leave us with a lingering high unemployment rate. And that's a very important policy consideration. Going forward, I am assuming we get through the presidential election cycle either way, with Trump to or Biden, one, without a significant disruption remains to be seen. But I have to make an assumption there. I'm also going to assume that there will be no other economically significant crisis in the near term. And we've had a hurricanes on battery, Louisiana, we've had wildfires in California, Colorado, New Mexico, other places. But what I'm going to assume about these is that they are not national level events, that would have a large impact on GDP, or the unemployment rate for the US as a whole. They are certainly major events in their local areas. And I don't want to diminish them in any way, shape, or form. If you're caught up near the California wildfires, you know how serious they've been this year. So but I'm saying they're not a national level event, that will have a significant impact on the trajectory of GDP, and other high level data. I'm also assuming that ongoing demand destruction eventually leads to capacity reduction in certain industries. We had the big drop in demand. In the second quarter, the full second quarter GDP down, we'd had the reopening, some of that demand came back, but not all of it. And that's very easy to see in terms of airlines and leisure, hospitality, restaurants, hotels, things like that. So ongoing demand destruction will eventually lead to capacity reduction. And so that means restructuring and means bankruptcies that means layoffs. And that's what we're seeing in a wide variety of industries. So as we as we're feeling the tailwind from reopening, as that fades, we're now facing a new headwind through this fall and into the winter, that's ongoing that the impact of ongoing demand destruction. Right now, I'm going to say that the number seven here, the economy, the economic recovery, will be highly idiosyncratic. It's very difficult to come up with one size fits all comments right now. It simply depends on where you are, what industry you're in, what kind of household you're in the kind of job you have as to how much you feel this coronavirus pandemic and the social mitigation policy in your life. I think that uncertainty still remain elevated for quite some time. And we will not feel normal with respect to Coronavirus until maybe then next summer, if then, but I'm hoping we can certainly by by next fall, we start to feel a little more normal in the US economy. So look behind us. And we see that big drop off in GDP on the right hand side down at a historic 31% annualized rate in the second quarter. So it doesn't mean that overall productive capacity in the US declined at a 31% annualized rate. But it means demand for that quarter really had the rug pulled out from under it. Now if if demand is weak, month after month after month, eventually that will translate into a run reduction us capacity. And we're starting to see that in certain industries as we round out the remainder of this year. So where are we right now with two broad indexes the isn manufacturing index and dark blue and the isn services index you may know that as the is m non manufacturing index, they just changed the name, same index. The orange line captures about 80% of the US economy the blue line may be close to 15% with government leftover and so you see both of those lines when they are above 50. Those are good conditions, expanding conditions. They tail down during the Great Recession they both got fairly weak. Row 40 of the services index stayed well above 50. for the duration of the last expansion cycle, the manufacturing index has some wobbles. It tends to be more cyclical, it tends to be a bigger accelerator, but it does have some wobbles in there, we see both indexes going down again, below the 50 mark, on the right hand side of the graph last spring, but the good news is, they are both now as of September, well above 50, into the mid to upper 50s, indicating expand expansion conditions for the bulk, the majority of all businesses in the US. So that's the tailwind from reopening now. And that's a very, that's a very positive sign for the US upon. Another positive sign is the single family housing market, we just got home construction data, housing starts for September of 1.9%. Most of that increase came on the single family side. And that's been driven by existing and new home sales, in particular, new home sales, pushing construction. So we're out there buying a lot of homes now. mortgage rates are very low. And we're seeing the best home sales numbers. Really since before the Great Recession, these these are best since late 2006. So a couple of good things about the housing market, when the existing home sale when the existing housing market comes up, which were sitting in the dark line here, up above a 5 million pace that drives a lot of purchases from Home Depot and Lowe's and the furniture store and all those other places you can't you can't pass a hardware store without spending $200 when you buy a house, so it's a nice accelerator for overall consumer spending. And certainly the new home sales in the orange line up now to a million units based on the right hand side. That's also a great positive signal for home builders. So there there are lots of add on effects from both the existing and new home sales coming back to now create a great recession levels, late 2006 levels, so very positive sign for us upon. When I look at jobs, I typically show you a graph of the month month change in jobs. And that would just show so much amplitude through the last two last spring that would scale would render the chart meaningless. So I'm just showing you the absolute level of jobs in the US economy. And the way to read this is on the left hand side, that little pump in 2007 into 2008. That was the peak of 130 8 million or so jobs in the US economy. Before the Great Recession. We go into the Great Recession, we lose about eight to 10 million jobs, we come down to 100 and 30 million jobs in the US economy as we enter 2010. We go through the longest expansion in US economic history, 128 months, and in the space of two months, marching into April, we undo all of that progress from the last hundred and 28 months, we go back down to 100 and 30 million jobs. The good news here is we got a lot of it back. The less than good news is through September, we got a lot of back in September, the less than good news is we only got about half of it back. And you can already see the inflection that line the rate of improvement going forward is going to slow significantly. And so that's going to still leave us with a gap here. That's going to take in my view many many quarters, if not years, to close that gap and get back up to a level of 150 3 million jobs that peak number we see and very early 2020. Consumer Confidence that's another important indicator thinking about the overall consumer economy. The good news here is that the September number came back strong. So going in the right direction after coming down hard through the grids through the Coronavirus shutdowns in March and April. The other good news along with consumer confidence coming back we saw retail sales coming back in September up 1.9% on automobiles unit auto sales, as you know came up in September. So the overall retail sales numbers I thought were a nice sign because discretionary purchases, autos, furniture, electronics, clothing, things like that the things we put off purchasing when consumer confidence tanked in March and April. They came back to in September. So another good sign there of us upon. So let's get into the GDP forecasts here the blue line the blue bars is car history. And again the massive 31% cut in annualized rate of decline in GDP. Second quarter, we've never seen a number like that before, a historic number on showing a bounce back in the third quarter, the now closed out third quarter at about 17%. So a couple of things to say about this, I'm showing an incomplete bounce back, we're not going to get it all back in one quarter. So I'm not calling this a V shape recovery, I'm calling it the partial view of the lazy view. The other thing to note is we're going to get the first US and third quarter GDP here in just a couple of days on October 29. At the end of this month, we'll get that first estimate for the third quarter. And we'll see where we are. I know I'm on the conservative side here. I've seen lots of forecasts up in the 20 25% range, I'm at 17. I hope I'm wrong. And I hope we get a little bit stronger here. But I think it will still be an incomplete bounce back and load on the very right hand side of this graph, I think is very important. And that even with this partial lazy v recovery, it's still going to take us on the order of 10 1112 quarters to recapture that peak GDP from 2019 to q4. So another message here to say this is an incomplete bounce back, even though historically in isolation, this third quarter numbers going to be the biggest GDP print we've ever seen in terms of the rate of growth. But it doesn't recapture that peak level of 2019 q4 GDP, we're not going to get there for probably a couple more years. on unemployment rates, similar story, we peak out at 10%. In the Great Recession, we come up here, here on a quarterly basis 13%, we've made a lot of progress and bringing it back down the latest monthly number on unemployment in the US 7.9%. But again, the progress from here on out is going to slow significantly. And leave us with a lingering high on interest rate forecasts probably the easiest one to make right now the Federal Reserve has nailed the Fed funds rate that benchmark short term interest rate near zero and says they're going to be there at least to the end of 2023, if not beyond. And that keeps a variety of other interest rates low as well, including 30 year fixed rate mortgage, a nice positive factor for that ongoing gains in the single family housing market. So I'm just going to wrap up on this slide very quickly here because that's that's a brief overview of the point forecast. And the one thing we know and we learned, we learned a big way last spring point forecast is always wrong. They're always events that come in to change that. What could change the point forecasts on the downside well, or a fall winter resurgence is the key downside risk, because that would require another round of shutdowns and could lead to a double dip recession. Indeed, Europe unfortunately is ahead of us in this they have already they're seeing that research is saying more shutdowns. And for many forecasters of the European economy, the EU as a whole. They are forecasting a double dip recession was their baseline. At this point. Oil lower for longer week global demand for oil prices week. Last week's energy producing states I'm coming to you from just outside of Dallas, are very much focused on this and thinking about the Texas economy as well. So lots of downside risk. But what can happen on the upside well rested world growth. Maybe Europe starts to level out China is actually doing quite well, first in first out of the Coronavirus problem, and they just printed their third quarter GDP numbers that show up at a 4.3% rate year over year and industrial production for September up at a 6.9% excuse me year over year again. We're all looking for the vaccine. I don't think we'll get we'll see widespread distribution and uptake and African efficacy until mid year next year. So it's going to take a while reshoring and supply chain reconfiguration. This is what we were talking about. Before the Coronavirus, said. I think there's still some some scope for gains there. The housing market, as I said a nice accelerator could lead to strengthening manufacturing sector and the tech sector. The reason why we're able to do this virtually, is the tech sector has really stepped up. And I think it's going to be one of the leading sectors, one of the areas of the economy that is showing rapid evolution in a positive way through this current crisis that we're in. So I'm going to end my prepared remarks there. I'm going to stop sharing, and we'll bring Joe back down. Joey Pizzolato 24:54 Thanks, Robert. That was great. I've got a ton of questions for you. Um, but I want to remind our audience If you have any questions for Robert, um, you can just shoot that into the Birla chat box. And they will be funneled to me. So just to start off, you know, I'm curious what your current thinking is on the auto sector for both new and used? Does your lazy v recovery imply more strength and then use market? Robert Dye 25:23 Well, I think it's one way to think about this recovery is a case shape. And it doesn't really tell what where we're going to do, it tells you that the current conditions and and when we think about K, there's the branch on the upside. And we know lots of households. And I hope most of the people who are viewing this right now are on that upper branch, okay, you're feeling fairly secure in your job in your financial situation. But we also know there's a whole lot of households that are not, and particularly middle to low income households who are working service sector jobs, maybe part time jobs, there's still 25 million people out there collecting some form of unemployment benefits. So my expectation is that case shape is going to be visible in a wide variety of places in the US economy, and the auto sector is one of them. I think that the mid to high end luxury automobiles. And sure the middle market, automobiles and trucks will continue to do well and will especially be benefited from from on going games and home sales and home construction. But certainly the lower end of the hose out, excuse me, the lower end of the auto market on the set housing market, the lower end of the auto market is going to suffer, because people are really going to be feeling as their unemployment benefits, roll off enhanced benefits rolled off in July, the subsequent benefit of $300 plus the extra hundred from FEMA last rolled off looks like we're not going to get this any more fiscal stimulus for a while. So that's really going to hurt. So the entry level and the parts of the used car market as well. So again, thinking about letter K bifurcating a lot of what we're seeing in the US economy. Hmm, um, Joey Pizzolato 27:15 second question for you. And I believe this is from our audience, um, you know, when does your forecast take a downturn as it relates to an effects vaccine? Um, so for example, you know, as it relates to kind of timing, do we need it in in the day, like the first half of the year? or later, is there is there any sense in kind of that's timing of execution, or Robert Dye 27:40 Well, in terms of the economic impact of getting the vaccine will come into two areas. One is competence. And, and we, as I said, we did see a rebound in September consumer confidence, but again, a partial rebound. That's one of the overriding stories here that partial v shape or lazy B. So we can see more gains from consumer confidence, we can certainly see more gains from business confidence. And I think that once we know that a vaccine is on the way, I think we'll start to see those confidence measures come up even more. But then going back to the mobility, perhaps it'll still take a few months before full mobility comes back. And we feel comfortable enough to get on airplanes to drive to attend sporting events and sit and sit in a stadium with 80,000 other people, it's going to take a while for that kind of competence to come back. So I think it's going to be a gradual process. But I, the one thing I can say with with great confidence is we will get there. We don't know exactly when, but we will get there. And I would say someplace on the order of six to nine months out from now. We start to see that confidence reemerging. And then we've got very low interest rates. We've got the Fed committed to that. We've got a lot of fuel, priming the US economy, and I would expect to see above trend growth, they're responding to that rebound in confidence and these very low interest rates. Joey Pizzolato 29:13 Okay, great. Another question from our audience. Um, can you comment on your opinion of true unemployment rate? An article in the Wall Street Journal this morning this morning, excuse me, pointing to more of the unemployment halting unemployed, halting their job search activities and falling out of the labor pool? What should we What should we be thinking about the truth behind the recent you our readings? Robert Dye 29:42 Excellent question. It always comes up as we go into recessions and come out. When economists talk about the unemployment rate with air quotes around it. They're talking about a specific number, the youth unemployment rate, which is a fairly narrow definition. There's a broader definition they use Which includes marginally attached workers in the US six is always higher than the youth rate by about 234, or 5% in that range. And that's the case. Now, one thing we always observe coming out of a recession is that the labor force starts to parts of the labor force contract a little bit, because we define them out of the labor force, if a worker stops actively looking for work, and their unemployment benefits roll off, they're technically no longer in the labor force. And that does bring the unemployment rate down. So you can look at a broader metric. And a broader metric in this case might be the total employment to population ratio. And that will improve at a much slower rate than the unemployment rate coming out of the recession. So we're not trying to avoid this question. I'm trying to be consistent in our metrics and how we measure things. But But the real answer is, there's more than one way to measure and a very broad measure of employment to population ratio will capture this effect. Joey Pizzolato 31:09 Great, thank you for the clarification. Um, you know, we kind of go into this pandemic recession, the first inclination for I think everyone was to compare it to 2008. And I think, you know, as of now, we're all pretty aware that it's vastly different, but it does still have its similarities. So, you know, from your perspective, you know, how, what are the key ways in which is different? And what are the key ways in which it is similar that, you know, we need to be aware of, especially from the lens of the like, auto finance industry? Robert Dye 31:42 Well, one, I'd say the way to answer that question is the is to talk about a concern of mine, because we've had a very unique recession in Coronavirus. We haven't had an event like this since the beginning of the 19th, early 90s in the early 20th century. So we don't have a lot of experience with that it was caused by an event. And we had to we had to roll out social mitigation policy to combat the event. The concern that I have is potential for ongoing demand destruction, to if we're not careful here, and the lack of appropriate policy to result in a transition between a very specific, unusual idiosyncratic recession into more of a general run of the mill, demand destruction type recession. And so we're in that transition zone now, and a little bit of policy I think, can go a long way. So that's one way I think we're in a very unique environment right now. Because we basically did it to ourselves in terms of locking everything down, we know that, but the after effects of locking everything down, think about airlines, laying off people, hotels, restaurants, all that that can eventually accumulate and generate its own momentum. And we just find ourselves back in a run of the mill recession. So that's the downside risk. And that's one way that, that the events are very different from 2007 2000. Joey Pizzolato 33:14 Great, great, I'm kind of a follow up question that, um, you know, there's early, early last year, there was talk from, you know, economist and in the industry that, you know, 2020 2021 was going to bring kind of a natural recessionary cycle, obviously, that was exacerbated by by the pandemic. But, you know, what, what might be, um, what sort of hit to the economy? Could we expect or be concerned about if we were to kind of naturally roll into that recessionary downturn? On top of, you know, this, as you mentioned, self induced, kind of shut down? Robert Dye 33:57 Well, I think the odds of that now are quite low, because we've, we've gone through a big reset, we've hit the reset button on the economy, and we've hit the reset button on policy. One reason why myself and many other economists were starting to elevate our odds of recession at the end of last year, was because it was a very labor rich environment. That was it was both a good news and a caution, cautionary tale. We added a whole lot of labor companies were losing track of their efficiency ratios and corporate profits were starting to come in because of that. And that is often an early indicator that you're a peak cycle and you're about to go into a restructuring phase. Well Coronavirus hit before that. And we've already seen the layoffs. And we now have brought policy rates, Federal Reserve down to zero. We've had three rounds of fiscal policy, we might get some more here. So that sort of sets the reset button on that part of the analysis. So we My guess right now is we'll see ongoing expansion, we will see more policy brought to bear. But the odds of a sort of getting into that corporate profit squeeze type recession right now, I think are pretty well behind us simply because we've already gone through a big squeeze and a big churning out of the labor market and a reset on policy. Okay, that Joey Pizzolato 35:28 bodes well. Another question from our audience Robert Dye 35:34 is, what are the long term changes to the automotive demand dynamic as a result of this predicament? And then I would just add to that as well, like, you know, especially considering, you know, new housing starts on home prices are up home sales are up, you know, does that, does that eat up some of the demand for for autos, it's gonna be a very interesting analysis, when we start to get data on how are people changing their residence locations? And how are they changing their relationship to their work office, and are we now on this is how much of this remote working and and moving to out of the city into other locations, how much of that is permanent, and how much of that is going to revert? My guess is some of each, some of it is going to be permanent, and some of it is going to revert. And so that does say that, we will probably, or we will likely put less miles on our automobiles, I've got a brand new pickup truck sitting in the driveway about about a year ago, hasn't got a whole lot of miles on it this year. But I'll start going back to the office and put a little bit more on that truck by almost by because of this is going to wear out at a slower rate. And so I think there will be an impact on overall auto demand. The other interesting thing we're seeing right now, and probably talked about this in other sessions is California and New Jersey, have both now said they're going to ban fossil fuel powered automobiles by 2035. So we're starting to see that tipping point, we're seeing Tesla, now opening a plant in Texas, we're seeing General Motors talking about putting $2 billion into a new plant in Tennessee, or an electric Cadillac SUV. So we're, I think that tipping point is getting accelerated at the same time. We're going toward electrification probably a little bit faster. And but overall demand right now might be a little might be subdued due to permanent changes in commuting patterns going forward. Probably not as much as we have right now. Again, I'm expecting some report, but I think some will stay as well. Joey Pizzolato 37:49 Hmm. And that segues really nicely into our next audience question, which is geared towards manufacturing. And it means I'm Bill Strauss of the Chicago fed who previously gave this Economic Review at the summit consistently over the years pointing to more manufacturing in the US than is generally thought. So the question is, why will Won't we see more? Will won't? will or won't we see even more domestic manufacturing after the pandemic? Robert Dye 38:22 Oh, well, yeah. Bill's an excellent economist. I know him quite well. So I'm not going to second guess what he has said, because I know I wasn't there to hear it. But before, certainly before the pandemic, we were talking about a lot about reshoring, we're starting to see more evidence that the Trump administration we all know took a very aggressive stance toward China with respect to tariffs, and trying to encourage more reassuring in the US, I don't think that that trend is going to go away. I think wherever if it's a Trump two or buying one, I think we'll still see parts of that. And we are recognizing now that it's prudent to have at least some some supply chains for medical equipment and other things like that within the US as opposed to overseas. I think there's a pretty widespread recognition right now that we probably went a little bit too far in terms of globalized supply chains. Now, the end result of that might be China has a supply chain, and everyone else has a supply chain, and that remains to be seen. So I think this is still very much in flux here. The other thing that that the other implications of that though, for separate supply chains from China in the US is a bifurcation. And, and these two markets and we were before the pandemic, we're starting to see those markets come together a little bit and because China is so much bigger, in terms of its auto demand, they were concerned that they're going to start setting the pace Maybe Maybe this pandemic delays that effect a little bit. And the market stay a little bit more separate for a little bit longer because of the supply chain divergence. Hmm. Joey Pizzolato 40:13 So switching gears a little bit here, um, you know, you've talked a lot about, you know, policy, and we know, the Fed has done quite a bit, you know, they reactivated their talent program, which auto motive hasn't used yet. But that's besides the point. Um, you know, that a lot, they've injected the market with a lot of liquidity. I'm curious, you know, as it relates specific to, you know, auto finance industry, um, you know, is there any anything else that, you know, they're thinking about doing couldn't be doing more of to help kind of boost up the depressed market? Robert Dye 40:43 Yep. So three big brands is a policy right now, social mitigation policy, fiscal policy under discussion and monetary policy from the Federal Reserve? Yeah, we are able to keep the expansion going. I think that's a reasonable if, then, then I think it's safe to say that Federal Reserve policies probably played out at this point. They've lowered interest rates, they, as you've said, they increase the size of their balance sheet purchase a lot of assets injected a huge amount of liquidity out there, they rolled out the mainstream lending Mainstreet lending program. So my guess is that we probably won't see a whole lot of new stuff from the Fed, unless we really start to hit the skids. Again, if we have to go back in the skirt, social litigation policy. So what would be left for the Fed to do if that happened? Well, they could certainly continue to increase their balance sheet, there's no theoretical limit there, they can inject more liquidity, they could improve the terms of their main street lending program to get more uptake there. And the last thing that they could do, I think, I'll put it in will save in order the last and the least likely thing, they could go negative on interest rates. I do not expect the Fed to do this. But that is a concept that we're seeing other central banks, when we have seen other central banks around the world experiment with to greater or lesser success. Jay Powell, Chairman of the Federal Reserve has said consistently, he does not want to go negative. I'll take him at his word. I think it would be not a clear benefits of the US economy and out a lot of confusion in the financial markets. So I would look for more asset purchases, and and easier terms on the main street lending program. Joey Pizzolato 42:36 Okay, so just like for me, I understand the concept of negative interest rates, kind of theoretically, but like practically, what would that mean? I'm just, you know, briefly, we don't have to dive too much. Robert Dye 42:48 So negative interest rates are basically paying, I pay you to hold your mind. And so or, excuse me, you pay me for holding your mind. normal times on normal times. It's the other way around. So you pay me in order for the privilege of holding your mind, for the bank would do under under most circumstances is have tiered rates. And the consumer rates would stay positive, weekly positive, but maybe the rates for the biggest corporate clients would go negative. And what that would do that would encourage a corporate clients to go out and do something else with that money, make that make investment decisions, buy some equipment, expand your business, things like that. So it is thought to be a stimulus boost to the economy. But it would be done on a tiered system, and most consumers would not see negative rates. Now, there's a great deal of debate whether about how much boost you get out of that. And again, Jay Powell and the US Federal Reserve has said they think we would not get a whole lot of these data that and we would add a lot of stress and confusion to the US financial system. So probably not a good cost benefit analysis for the US. Mm hmm. Joey Pizzolato 44:05 Well, thank you, Robert. So much. That's all the time we have today. I really appreciate the conversation and thank you again to PDP group for sponsoring this session. At this time, we'll take a break, so please use this time to have one on one meetings, check out our sponsored breakout from Cox Automotive in our on demand panel. Both can be viewed by selecting the session in the schedule. additional content from our sponsors is available in the stream tab. And don't forget to join us back live in session in our next session at 2pm for the annual auto finance excellence awards. Thank you </div> [/toggle]
