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Jay Bryson, Wells Fargo Securities Acting Chief Economist:
I’m Jay Bryson, the acting chief economist at Wells Fargo, and I’m joined here today with Sarah House, our senior economist, and one of our economists, Michael Pugliese, and we’re here to talk about our annual outlook for the next two years. So, Sarah, here we are at the end of 2019. What are you looking at going into 2020 and 2021?

Sarah House, Wells Fargo Securities Senior Economist:
Well, we’re looking for the expansion to continue. Growth might be a little bit slower in the U.S. than we saw this past year, and part of that’s coming from the fact that business investment remains under pressure given that we still see a lot of uncertainty particularly as it relates to the trade environment. But overall, the U.S. consumer looks like they’re in pretty good shape, so household balance sheets are strong right now. And we’re still seeing some strong labor force activity as well, and so with hiring keeping up it looks like income is doing well in addition to that.

Bryson:
So, are there any particular risks to that outlook? You know, is there a way that we could kind of tip over into recession or conversely could the economy really boom in 2020?

House:
Yeah, I think there’s both upside and downside. So, on the upside, if we did get some clarity around trade and more of a comprehensive resolution, then I think you could see stronger business investment. We also have some upside risk in terms of consumer spending just where the saving rate is right now. But alternatively, trade presents a downside risk too, so if we do see tensions escalate further or tariffs get increased even more, then that could lead to weaker business investment, perhaps some volatility in financial markets too, which could influence consumer confidence, and that could spell some trouble for the U.S. economy. Now, Mike, what’s your outlook for the global economy in the year ahead?

Michael Pugliese, Wells Fargo Securities Economist:
Yeah, well, it’s been a real challenge this year if you think about the fact that, you know, a year ago what were the issues we were thinking about. It was what’s going to happen with trade in early 2019, what’s going to happen with this USMCA deal that we just had. You know, all these kind of challenges on Brexit and other areas that we thought might be solved by early in the year, they’re really still with us. And so you look around the world and the impact that’s had on growth this year, it’s been pretty challenging. You look at China, they’ve slowed by about half a percentage point or so this year, looking for a little bit more of that into 2020. You look at Europe, they’ve been teetering on the edge of a recession for the better part of this year. You know, export bellwethers like Germany are really struggling right now. The UK obviously continuing to deal with Brexit, so it’s been a pretty tough environment, and we think that’s probably going to continue for a little while longer until some of these issues around the trade war with China, along USMCA, with Brexit, until those types of things start to get resolved.

House:
So, what does that mean for the outlook for the dollar then?

Pugliese:
Yeah, for the dollar what we’re thinking is that in the near term, probably pretty steady. Most central banks right now are either on hold or easing a little bit, but for the most part we think the dollar’s going to be pretty steady in the near term. Now if you look a little bit farther out, more medium-term type outlook, there’s probably a lot more upside to rates abroad than there is in the United States, so more of a steady dollar outlook in the near term but over time, as monetary policy in places like Europe and the UK potentially starts to tighten a little bit, we think that probably means some downside risk to the dollar and eventual depreciation over the medium term. Now, Jay, how do you kind of square that U.S. and global outlook from the central banking, policy making side?

Bryson:
Right, so if we start here in the United States, I mean the Federal Reserve here this year has cut rates by 75 basis points, and they’re arguably close to being done. You know, maybe there’s a rate cut early next year, maybe not. They’re waiting to see how things pan out. But in any case, it’s hard to see the Fed hiking rates anytime soon, so I think here in the United States you’re in a low interest rate environment for the foreseeable future, you know, and given what you just outlined in terms of the rest of the world as well it’s hard to see the ECB, the European Central Bank, or the Bank of England or other major central banks like that hiking rates here in the near term as well. So I think in general you’re looking at as what we’ve had in the last few years a very low rate environment kind of around the world. You know, Mike, Sarah was talking about some of the downside and the upside risk to the U.S. economy — 2020, election year in the United States. How do you see all that playing out, and what effects would that have on the economy?

Pugliese:
Well, it’s another source of policy uncertainty that’s lingering out there now. So obviously you’ve got President Trump up for reelection on the Republican side, still a very deep field on the Democratic side, and really four key candidates that have started to emerge — so is you look at Joe Biden, Elizabeth Warren, Bernie Sanders, and Pete Buttigieg — they’re capturing about three-quarters of the national support when you look at polling averages across the country. So you’ve got four candidates all with a pretty broad range of policies to a little bit more moderate center left, you know, all the way to some more significant progressive goals that those candidates would like to enact. You’re looking at a pretty broad spectrum of policies being proposed from, you know, President Trump and then across the Democratic side. As hard as it is to believe, we’re still looking at two months until Iowa, and then another several months, so this is something that’s going to be with us obviously for the course of 2020, but the one thing I do think we want to caution on is: Don’t forget it’s not just about the presidential race. You know, right now Democrats control the House of Representatives, in the Senate the Republicans still control it, and something that really was a big driver of the move we saw in 2016 across financial markets and the economy was that was the first time in a decade that Republicans had unified control of the presidency, the House, and the Senate. So that’s another thing that we’re going to have to keep an eye on because if you still do have divided government even in the event the White House turns over to the other party, you still might not see the type of significant policy change that leads to the impact on the economy and the financial markets.

Bryson:
Well, thank you Mike, and thank you Sarah, and thank you all for joining us today. We wish you all the best for the holidays and we wish you a happy and prosperous 2020.

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