The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
EMBARGOED UNTIL FRIDAY, SEPTEMBER 20, 2019, AT 11:20 A.M.; OR UPON DELIVERY Assessing Economic Conditions and Risks to Financial Stability Eric S. Rosengren President & CEO Federal Reserve Bank of Boston New York University Stern School of Business New York, New York September 20, 2019 Figure 1: Recent Data and Blue Chip Forecasts May 2019 June 2019 July 2019 Aug 2019 3.6 3.7 3.7 3.7 CPI 1.8 1.6 1.8 1.7 Core CPI 2.0 2.1 2.2 2.4 Monthly Average 2,854.71 2,890.17 2,996.11 2,897.50 Month-end Close 2,752.06 2,941.76 2,980.38 2,926.46 Actual Unemployment Rate (%) Inflation Rate (% Change from Year Earlier) S&P 500 Consensus Forecast for 2019 as of: June 10, 2019 September 10, 2019 Real GDP (% Change, Full Year over Prior Year) 2.5 2.3 Unemployment Rate (%, Fourth Quarter) 3.6 3.6 CPI (% Change, Full Year over Prior Year) 1.9 1.8 Source: BLS, Blue Chip Economic Indicators, S&P, Haver Analytics 2 Figure 2: Federal Funds Target Rate: Actual and Forecast June 20, 2019 - December 31, 2019 3.0 Percent 2.5 2.0 1.5 Actual Forecast 2% Inflation Target 1.0 2020-Jun-19 Jun 101-Aug-19 Aug 1919-Sep-19 Sep 3131-Oct-19 Oct 1212-Dec-19 Dec Note: The forecast for the federal funds target rate is calculated using the CME Group probability for the most likely outcome for the target range. Pictured above is the midpoint of the actual and forecast target ranges. Source: Federal Reserve Board, CME Group, Haver Analytics 3 Figure 3: Federal Funds Target Rate: Actual and Forecast June 20, 2019 - December 31, 2019 3.0 Percent 2.5 2.0 1.5 Actual Forecast Longer-Run Federal Funds Rate Estimate (SEP) 1.0 2020-Jun-19 Jun 101-Aug-19 Aug 1919-Sep-19 Sep 3131-Oct-19 Oct 1212-Dec-19 Dec Note: The forecast for the federal funds target rate is calculated using the CME Group probability for the most likely outcome for the target range. Pictured above is the midpoint of the actual and forecast target ranges. The longer-run federal funds rate estimate is the median of the SEP estimates for the federal funds rate in the longer run. Source: Federal Reserve Board; FOMC, Summary of Economic Projections; CME Group; Haver Analytics 4 Figure 4: Unemployment Rates and Real Interest Rates 1988:Q1 - 2019:Q2 12 Percent Natural Rate of Unemployment Unemployment Rate 8 4 0 1988:Q1 4 1993:Q1 1998:Q1 2003:Q1 2008:Q1 2013:Q1 2018:Q1 Percent Real Federal Funds Rate minus r* 2 0 -2 -4 1988:Q1 1993:Q1 Recession 1998:Q1 2003:Q1 2008:Q1 2013:Q1 2018:Q1 Note: Laubach and Williams define r-star as the real short-term interest rate expected to prevail when an economy is at full strength and inflation is stable. Source: Federal Reserve Bank of New York, Measuring the Natural Rate of Interest, https://www.newyorkfed.org/research/policy/rstar/overview; BLS; CBO; Federal Reserve Board; NBER; Haver Analytics 5 Figure 5: Inflation Rates and Real Interest Rates 1988:Q1 - 2019:Q2 5 Percent Change from Year Earlier Trimmed Mean PCE Core PCE 4 3 2% 2 1 0 1988:Q1 4 1993:Q1 1998:Q1 2003:Q1 2008:Q1 2013:Q1 2018:Q1 Percent Real Federal Funds Rate minus r* 2 0 -2 -4 1988:Q1 1993:Q1 Recession 1998:Q1 2003:Q1 2008:Q1 2013:Q1 2018:Q1 Note: Laubach and Williams define r-star as the real short-term interest rate expected to prevail when an economy is at full strength and inflation is stable. Source: Federal Reserve Bank of New York, Measuring the Natural Rate of Interest, https://www.newyorkfed.org/research/policy/rstar/overview; BEA; Federal Reserve Bank of Dallas; Federal Reserve Board; NBER; Haver Analytics 6 Figure 6: Building Permits for New Privately Owned Housing Units January 1988 - August 2019 2,400 Thousands 2,000 1,600 1,200 800 400 Jan-1988 Jan-1993 Recession Source: Census Bureau, NBER, Haver Analytics Jan-1998 Jan-2003 Jan-2008 Jan-2013 Jan-2018 7 Figure 7: Initial Claims for Unemployment Insurance January 2, 1988 - September 14, 2019 800 Thousands 600 400 200 0 02-Jan-1988 21-Nov-1992 Recession 11-Oct-1997 31-Aug-2002 21-Jul-2007 09-Jun-2012 29-Apr-2017 Note: Four-week moving average Source: U.S. Department of Labor, NBER, Haver Analytics 8 Figure 8: Average Debt Multiples of Highly Leveraged Loans 2002 - 2019:Q2 6 Average Total Debt to EBITDA Multiple 5 4 3 2 1 0 2002 2004 2006 2008 2010 2012 2014 2016 2018 2019Q2 Note: Includes loan deals that are syndicated in the U.S. market. Includes transactions with loans priced at Libor+225 and higher. Total debt includes loans and bonds. Excludes the media and telecom industry deals prior to 2011. EBITDA is earnings before interest, taxes, depreciation and amortization. Source: LCD, S&P Global Market Intelligence 9 Figure 9: Capitalization Rates by Property Type 2001:Q1- 2019:Q2 10 Percent Industrial Office 9 Retail Apartment 8 7 6 5 4 2001:Q1 2004:Q1 Recession 2007:Q1 2010:Q1 2013:Q1 2016:Q1 2019:Q1 Note: The capitalization or “cap” rate is the ratio of net operating income produced by a property to the price paid, calculated at the time of a transaction. Based on properties of $2.5 million or more. Source: Real Capital Analytics, NBER, Haver Analytics 10 Figure 10: Simplified Co-Working Business Model* Debt Investor (Bank, Non-Bank) Repay Equity Capital Office Property, Owner Ownership Lease Payments, Property Improvements Rights to Office Space Lease agreement for a defined amount and term (typically 10-15 years) Sublease tenant signs a membership/ lease agreement for a defined amount and term (typically month-tomonth, year-to-year) Co-Working Company Ultimate Parent Funding, Resources Profit, Loss Building and Servicing Subsidiaries: Provide Property Improvements, Tenant, Other Services A Special Purpose Entity (SPE) may be utilized. The Ultimate Parent may or may not provide credit support. *Co-working companies’ business models may utilize different structures Lease Payments Sublease Tenant #1 Sublease Tenant #2 Sublease Tenant #3 Rights to Office Shared Office Space with Individual Lessees Debt Capital Equity Investor 11
@FedFRASER