Bill Hampel Explores the Economy after the ‘Sugar Rush’ Ends

8/14/18

Bill Hampel

The U.S. economy is in the midst of a sugar rush from full employment, said economic consultant and former CUNA chief economist Bill Hampel. And while it feels good right now, it could change in about 18 months.

“Over the next few years, the economy will become a bit more fragile than it’s been,” said Hampel. “Inflation induces interest rate increases. Interest rate increases have historically caused most of the recessions since World War II. If we face a cyclical recession, it’s going to be NOTHING like the Great Recession. It will be much milder, and many won’t even notice.”

If the U.S. economy is looking great right now, what could cause it to fall into a recession in the near future?

“For eight of the last nine years, we’ve been recovering from the Great Recession,” said Hampel. “We were in a world with low inflation, high but falling unemployment and fairly steady growth. We all knew where the economy needed to go. When the economy has less than full employment, Fed policy tries to encourage full employment.”

However, a little less than a year ago, the economy reached full employment.

“Now that the economy is at full employment, the job of the Fed is more ambiguous,” he said. “What do we do to make sure inflation doesn’t get out of hand? Will inflation rise just right, or will it rise too much, too quickly and cause another recession?”

These are the questions on the minds of many economists. But, Hampel drives home the point that this doesn’t necessarily spell gloom and doom.

“It is possible for the Fed to get it just right and nudge interest rates up just enough,” he said. “It’s also likely that since a recession will be milder, we won’t see dramatic changes in consumer behavior.”

In the meantime, Hampel suggests credit unions shouldn’t adjust financial operations or policies based on a forecast.

“Credit unions should be prepared,” he said, “but not so risk-averse that they are fully immune from any impact. Successful credit unions must manage interest rate risk. One way to do that is with ALM scenario modeling.”

One other challenge credit unions may face in a full-employment environment is finding and retaining their workforce.

“Finding entry level workers will be difficult,” said Hampel. “Staff retention is going to be more important for the next couple of years, because employees are going to have more options.”

Hear more of Hampel’s insights and others at the Economic Forum portion of Catalyst Corporate’s 2018 Future Forums. Register today by visiting www.catalystcorp.org/r/forum.