2023 Economic & Investment Series: A Discussion With Kevin Warsh

Welcome to the 2023 Economic and Investment Forum, hosted by City National Bank CEO Kelly Coffey. This edition of the forum featured interviews with economist Kevin Warsh and a panel of economic experts from Royal Bank of Canada and City National Rochdale, City National's investment advisory organization.

The event focused on current issues such as inflation, recession and the geopolitical events triggering economic volatility.


About Kevin Warsh

Kevin Warsh is an American economist who has spent time working in the private and government sectors. He received his undergraduate degree in public policy from Stanford University and his law degree from Harvard Law School. Warsh started his career in finance as a mergers and acquisitions banker in the private sector.

In 2002, Warsh was appointed to the Federal Reserve Board of Governors by President George W. Bush. He served on the board until 2011, where he played a role in the response to the 2008 financial crisis. After leaving the Fed, Warsh worked as an economic advisor to several private equity firms and hedge funds.

Today, Warsh contributes to several publications, including The Wall Street Journal and The Financial Times. He also serves as the Shepard Family Distinguished Visiting Fellow at Stanford University's Hoover Institution and a lecturer at the Stanford Graduate School of Business.


Part I: Recession Indicators


For Warsh, one of the best early indicators to decide if the U.S. is heading toward a recession is global trade. He pointed out that global trade is down between 7% and 17%, depending on the country. For Warsh, this is an early indicator of a global recession.

While some might point to the low unemployment rate as a sign of the U.S. economy's strength, that's not the only workforce indicator that Warsh pays attention to. He pointed out that low unemployment is a key indicator of the economy's strength in most instances. However, the U.S. labor market is experiencing a challenge: Workers are leaving the workforce permanently.

Warsh pointed out that:

  • About 1 in 6 working-age males have left the labor market.
  • The number of hours that Americans work has been decreasing.
  • Productivity has declined along with hours worked.

Warsh said what he sees with global trade, combined with U.S. labor statistics and inflation, are signs that the consumer is not as strong as robust unemployment numbers may suggest. Warsh's observations have led him to predict that the U.S. economy is likely to experience a recession in the second half of 2023.


Part 2: How Severe Would a Recession Be?


Tom Galvin, chief investment officer of City National Rochdale, shared his outlook for 2023's economic direction. He agrees with Warsh that a recession is likely, and provided more detailed thoughts regarding what one might be like.

Galvin feels that the Federal Reserve Board is being too optimistic when it describes the “soft landing" it is working to achieve with the economy. Instead, Galvin predicted a mild recession. He asserted that a mild recession will see inflation decrease at a steady pace while the unemployment rate slightly increases. While Galvin remained positive that job losses wouldn't be drastic, he cautioned that this could end up being bad for the economy by keeping inflation-deepening wage pressures high.

The opinions expressed in this presentation are solely the personal views of the speakers and do not represent the views and opinions of City National Bank.

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