Welcome to the

16

th

Annual

Economic Forecast Breakfast Equal Housing Opportunity

Member FDIC

Bob Ramsey •  COO of Ballparks of the Ozarks •  Sports Announcer •  Saint Louis University Hall of Famer •  Voice of Royal Banks of Missouri

Thank you to our Sponsors

Predictions for 2016

Predictions for 2016 Gas Prices (at the pump and per barrel) •  Predicted: $2.50 & $65.00 •  Actual:

$2.20 & $53.99

Predictions for 2016

Prime Rate •  Predicted: 4.00% •  Actual:

3.50%

Predictions for 2016

Unemployment Rate •  Predicted: 5.10% •  Actual:

4.90%

Predictions for 2016 Dow Jones Industrial Average •  Predicted: 16,500.00 •  Actual:

19,549.62

Predictions for 2016

NASDAQ •  Predicted: 4,550.00 •  Actual:

5,393.76

Predictions for 2016

S&P •  Predicted: 2,000.00 •  Actual:

2,241.35

Predictions for 2016

Price of Gold •  Predicted: $1,300.00 •  Actual:

$1,175.50

Predictions for 2016 Treasury Yields •  Predicted: 2 Year – 1.00% 10 Year – 1.75% •  Actual:

2 Year – 1.11% 10 Year – 2.40%

Predictions for 2017

Please take a moment to fill out your predictions for 2017 on the sheet provided in your folder. Please leave them on the table before you leave.

Speakers

Bob Hardcastle President & CEO of Delta Investment Services, Host of the AM radio show, “Money Talk,” for nearly 3 decades, author of 4 books, and has over 50 years of financial planning experience

*  Presented by Robert Hardcastle Delta Investment Services

* Most people don’t like

change, especially when it’s coming from the outside

* President-elect Trump is

going to make big changes

* Many changes may come

quicker in certain instances than many people think

* 

* Obama Care * Uninsured * Children still living at home

* 

* Russia (Mr. Putin & Mr. Trump) * China & U.S. Relations * Europe * Dollar strength * Will Brexit spread * Middle East (Iran, Iraq, Syria) * Israel * Japan *  * N Korea

* Dodd Frank * DOL * EPA (oil, coal, gas, pipelines)

* 

* between Military- stronger, and possibly better relationship the President and the U.S. military * Education- a way for

non-citizens to become citizens & stay in the U.S.

* Banking & financial- pressure off of the banks * could Interest rates- moving slowly, but higher—what all this do? Happy times are here again.

* 

* The Wall & more

* 

* Radio, TV, Newspapers have been one-sided

* 

* 

Susan Solovic THE Small Business Expert Award-winning, serial entrepreneur, media personality, keynote speaker, New York Times, Wall Street Journal, USA Today bestselling author, and attorney helping build multi-million dollar businesses with her proven strategies from the trenches

Dr. William Emmons Assistant VP and Economist for the Federal Reserve Bank of Saint Louis

Royal Banks of Missouri 16th Annual Economic Forecast Breakfast

Long-Term Fiscal Risk Has Increased December 9, 2016 William R. Emmons Federal Reserve Bank of St. Louis [email protected] *These comments do not necessarily represent the views of the Federal Reserve Bank of St. Louis or the Federal Reserve System. 1

The Long-Term U.S. Fiscal Outlook Was Poor Even Before the Election

§  Economists long have expected the federal debt-to-GDP ratio to rise rapidly because: Ø  Baby Boomers will retire. Ø  Healthcare costs will continue to spiral. Ø  Increased revenue is off the table. Ø  Interest payments will soar on the growing federal debt.

2

Short-Term Effects of Proposed Tax Cuts and Increased Spending: Mixed

§  Positive: Economic growth may increase for a few quarters or years. §  Negative: Federal budget deficits and debt will continue to rise. §  Negative: Both will push up long-term interest rates. 3

Long-Term Effects of Unfunded Tax Cuts and Increased Spending: Negative

§  Supply-side economics redux? Ø  Historical evidence and plausible economic models show that large fiscal expansions do not “pay for themselves” through faster growth and higher tax revenues—unless they trigger inflation.

4

Long-Term Effects of Unfunded Tax Cuts and Increased Spending: Negative

§  Supply-side economics redux? Ø  Historical evidence and plausible economic models show that large fiscal expansions do not “pay for themselves” through faster growth and higher tax revenues—unless they trigger inflation.

§  Short-term gain, long-term pain Ø  If these plans materialize, we are likely to face increased risk of higher inflation, rising interest rates and more frequent financial crises in the years and decades to come.

5

CBO Pre-Election Forecast: Steadily Rising Deficits

Percent

Forecast

Annual deficits

6 Annual through 2054

CBO Pre-Election Forecast: Federal Debt Will Explode

Percent

History

Forecast

7 As of Aug. 2016; Annual projections through 2054

Historical Evidence: Fiscal Regimes by President §  Falling debt-to-GDP ratios q Eisenhower q Kennedy/Johnson q Clinton

§  Little net change q Nixon/Ford q Carter

§  Rising debt-to-GDP ratios q Reagan/Bush I q Bush II q Obama

8

Historical Evidence: Fiscal Regimes by President §  Falling debt-to-GDP ratios q Eisenhower q Kennedy/Johnson q Clinton

§  Little net change q Nixon/Ford q Carter

Large fiscal stimulus

§  Rising debt-to-GDP ratios q Reagan/Bush I q Bush II q Obama

9

Historical Evidence: Fiscal Regimes by President §  Falling debt-to-GDP ratios q Eisenhower q Kennedy/Johnson q Clinton

Inflation limited debt §  Little net change accumulation q Nixon/Ford q Carter

Large fiscal stimulus

§  Rising debt-to-GDP ratios q Reagan/Bush I q Bush II q Obama

10

Historical Evidence: Fiscal Regimes by President §  Falling debt-to-GDP ratios q Eisenhower q Kennedy/Johnson q Clinton

Inflation limited debt §  Little net change accumulation q Nixon/Ford q Carter

Large fiscal stimulus

§  Rising debt-to-GDP ratios Large debt increases

q Reagan/Bush I q Bush II q Obama

11

Cumulative Changes in Debt-to-GDP Ratios

Obama

Reagan/ Bush I

Bush II

Carter

Nixon/Ford

Eisenhower Kennedy/Johnson Clinton 12

Fiscal Situation Was Expected to Deteriorate Whoever Was Elected

Obama

Reagan/ Bush I

Bush II

CBO pre-election forecast for 2017-25 Carter

Nixon/Ford

Eisenhower Kennedy/Johnson Clinton 13

Trump Tax and Spending Plans Likely to Accelerate Fiscal Deterioration

Obama Trump projection for 2017-25 by Tax Policy Center

Reagan/ Bush I

Bush II

CBO pre-election forecast for 2017-25 Carter

Nixon/Ford

Eisenhower Kennedy/Johnson Clinton 14

What About the Growth Effects of Tax Cuts and Infrastructure Spending?

15 Source: Tax Policy Center, Urban Institute and Brookings Institution, Oct. 2016

Long-Term Economic Effects Are Negative— Higher Debt Crowds Out Investment

16 Source: Tax Policy Center, Urban Institute and Brookings Institution, Oct. 2016

Long-Term Fiscal Problems Likely to Be Larger and Arrive Sooner

Percent

History

Forecast

Expected longterm effect of Trump fiscal plans on federal debt

17 Sources: CBO; Tax Policy Center, Urban Institute and Brookings Institution, Oct. 2016

In Sum: Long-Term Fiscal Risk Has Increased §  The long-term U.S. fiscal outlook was poor even before the election. §  Proposed tax cuts and increased spending may boost growth temporarily but also will increase budget deficits and federal debt significantly. §  Growth effects of unfunded tax cuts actually are negative in the long run due to crowding out. §  If these fiscal plans materialize, we face increased long-term risk of higher inflation, rising interest rates and more financial crises.

18

Q & A Session

Raffle

2016 Printable Slides If you are interested in accessing the slides shown today, please go to www.royalbanksofmo.com. You will find the 2016 Economic Forecast Breakfast Slideshow on our website.

Thank you for attending the

16

th

Annual

Economic Forecast Breakfast Equal Housing Opportunity

Member FDIC