We at the University of the Bahamas and the Government and Public Policy Institute believe in the power of partnership, locally and globally, to facilitate high-level public policy discussions on matters of importance to our community and our world. To this end, we are delighted once again to be here today with our partner, the Global Interdependence Center, a nonprofit think tank headquartered in Philadelphia in the United States, to do just that. We have convened once again to host this one-day conference on the theme 'Currency, Central Banks, and Climate Change,' featuring highly respected speakers from the United States, Bahamas, and the Caribbean. Throughout the day, we will address issues related to, among other things, global economic perspectives for 2025 and beyond, prospects for the US and Bahamian currencies and implications of BRICS, perspectives on monetary policy from the Federal Reserve and the Bahamas Central Bank, economic resiliency issues in light of climate change, continuing risk issues for the regional banking system, and US fiscal policy implications for the future. I believe it is no understatement to say that we are living in interesting times. Current shifts in power, policy, and possibilities across the globe, from AI to DEI, have left some hopeful, some bewildered, and others simply ambivalent. Perhaps our discussions today will provide an opportunity for new knowledge, deeper insight, and problem-solving that will lead to progress. Hope springs eternal, as the saying goes. I have hope. Of course, you, our audience, will get to listen to and participate in a number of panel discussions throughout the day, so we ask you to be engaged with respect and regard for the time constraints as we move along. So I welcome you and look forward to a successful day. With that said, ladies and gentlemen, please put your hands together and welcome to this podium President Janine, His Excellency Joseph Curry, Senator The Honorable Michael Halkitis, Minister of Economic Affairs, Mr. John Rolle, Governor of the Central Bank of the Bahamas, and financial leaders of the Bahamas, Dr. Patrick Harker, Governor of the Federal Reserve Bank of Philadelphia, Mr. William Kennedy, CIO of RiskBridge Advisors and Board Chair of the Global Interdependence Center, Mr. Jivago Lang, Executive Director of the Government and Public Policy Institute and Senior Policy Fellow at the University of the Bahamas, and other leaders at the University of the Bahamas, President and former board members of the University of the Bahamas. Good morning. It's my pleasure to welcome you once again to the University of the Bahamas for this public conference on Climate, Currency, and Central Banking, brought to us by the Global Interdependence Center based in Philadelphia and UB's Government and Public Policy Institute. Reflecting the core vision of the Global Interdependence Center, today's event brings together thought leaders and decision makers from academia, public policy circles, and the business world with a goal to promote thought exchange, dialogue, and the exploration of solutions to global challenges in finance and economics, and, dare I say, climate change. UB is pleased to do so for the second year in a row for this partnership between our Government and Public Policy Institute and GIC in bringing together international experts in policymaking, central banking, industry, and the academy to explore issues and policies concerning global interdependence that impact world economics and the quality of life. The conference today also reflects GPPI's mission to impact the good governance, prosperity, and sustainable development of the Bahamas, the Caribbean region, and beyond. In addition to the keynotes being brought by Governor Rolle and Dr. Harker and speeches by Minister Halkitis, sessions will address economic outlook topics, cost of living and cost of banking, a most interesting session entitled 'The Fed and the Flu,' a session on currency issues including examination of the Bahamian dollar, digital currencies, and the future of the US dollar, and a final session on risk management during the era of climate change, which is likely to be with us for a while. These discussions are timely and important. Reflection, dialogue, and debate of worthy ideas serve to amplify good for all. My deep thanks to the organizers for staging an event from which the impact will extend beyond today and into the policies and practices which improve global economies. The University of the Bahamas welcomes you, and I wish you a very productive day. Thank you very much.
Thank you very much, Madam President. We are always delighted when our Minister has the time to come and share with us, to present his welcome and insights. He has immense responsibility in these challenging times as Minister of Economic Affairs, and I don't think that he could ever resist an invitation to come to the University of the Bahamas since he's a graduate of the College of the Bahamas. And so we start our invitations to him with the College of the Bahamas, from which you graduated. He is an extremely astute gentleman, a financial expert in his own right, and a seasoned political leader. Please welcome with me Senator The Honorable Michael Halkitis.
Thank you very much, Mr. Lang, Executive Director, and good morning to all. The protocol has been established, but I pay respects to the President of the University and all distinguished ladies and gentlemen present. It is a pleasure to join you today as we kick off this summit to discuss the global economic landscape and the ways the Bahamas is navigating the many developments that are happening as we speak. I must comment that in listening to Mr. Lang read out the list of topics that will be ventilated, it is indeed a very, very impressive and relevant list of subjects to be examined. And as he said, we are living in uncertain times. Geopolitical alliances are in flux, and the global economy is shifting in unprecedented ways. And I dare to say that words such as multilateralism, consensus building, and indeed, Mr. Lang, partnership, seem to be going out of style. As a small island economy, it is clear that we must take the steps necessary to become more resilient, more sustainable, and more self-sufficient to thrive in these times of rapid change. We must encourage investment in emerging industries within the digital, green, and orange economies. We must develop the agriculture and fisheries sectors to lower our trade deficit and make us less sensitive to external shocks. And we must allocate the resources necessary to adapt to the triple transition of climate change, digitalization, and social equality. These three forces will spur tremendous change in coming years, and whether they hurt or help us, whether we remain competitive or fall behind, is up to us. Fortunately, ladies and gentlemen, we have a strong foundation on which to build. Last year we brought in a record 11.2 million visitors, which broke the previous record of 9.6 million the year before. We lowered the unemployment rate to 8.7%, the lowest rate since 2008, and we expect to see that number decrease even further. We have over $10 billion in investments in the pipeline, including unprecedented investments in Grand Bahama and our family islands. And we were removed from the EU's blacklist, securing the future of our financial services industry. The economic growth we have enjoyed over successive years has not been fully enjoyed by all of our people, however, due in large part to global inflation. Fortunately, the global inflation rate is finally leveling off. This is a trend that we hope will continue amid the potential changes in tariffs that may affect many of our largest trading partners. But despite it all, we are not in a bad place as a nation, especially when you consider the impact of ongoing wars, the global pandemic, the lingering impact of the global pandemic, and catastrophic hurricanes on our economy. We in the Bahamas have demonstrated a tremendous amount of resilience, which has prompted outside observers and multilaterals like the IMF to comment on our remarkable recovery. However, we also acknowledge that there is still a lot of work left to do. Our biggest challenges are also our greatest opportunities. For example, we must now deal with the high prices caused by the rise in global inflation over several years, which has placed a strain on Bahamian families. And we are seeking to meet this challenge head-on. In the short term, the electricity rate reduction is having an impact, and the VAT decrease from 10% to 5% on foods will provide some relief. In the medium term, the expansion of utility-scale solar and LNG will further decrease electricity bills as we establish new trade relationships and partners to access high-quality, affordable goods directly from source markets, cutting out the middleman. This will be accompanied by policies that promote competition and prohibit anti-competitive practices, which we will bring to the public for consultation in the very near future. In the long term, we have the modernization of our transmission and distribution grid for more sustainable, efficient, and cost-effective power generation and transmission. We also have plans for a much-needed expansion of investments in agriculture as we work toward our goal of cutting our food import bill by 25%. These are some of the short, medium, and long-term measures we are taking to help families and businesses cope with high costs, with cost of living being one of several high-priority items on our agenda. We are under no illusion that the government can take on these major issues alone. In fact, the effectiveness of our private sector will be equally as critical as the actions that the government is taking. Most significantly, our capacity for innovation and growth will be determined by the development of our human capital. That is why the reforms in our educational system to include more computer classes, agricultural classes, and special needs classes, to incorporate technical and vocational certifications, and to modernize our curriculum with a focus on numeracy, literacy, and STEM skills development, is so critical. Initiatives like the National Apprenticeship Program, which will provide paid training and apprenticeship for young people in high-demand areas, will also be critical in equipping our people with the skills they need to remain competitive in the labor market. Owners of small and medium-sized businesses must be empowered through the expansion of existing funding opportunities through the SBDC and other institutions, as well as through cost savings measures. In the upcoming midyear budget, we will announce details on incentives designed specifically to attract investments in our biggest and most important industries, such as tourism, finance, technology, and energy. And of course, the University of the Bahamas has a significant role to play in educating the next generation of leaders and visionaries and producing the research and policy that will inform effective decision making. I thank the University of the Bahamas and the Global Interdependence Center for the privilege of joining you this morning and for taking the initiative to organize this summit and facilitate the meaningful discussions that will take place today. I look forward to seeing the powerful ideas that will emerge from the summit, and I hope that we have the opportunity to come together to build on these ideas in the near future. Our economic outlook is promising, but to live up to that promise, we must be as agile, innovative, and excellent as we know we can be when we are at our very best. Fortunately, we have a strong foundation which will give us a strong start on the next leg of this journey, a journey I believe will lead to a brighter, more inclusive, and more prosperous future for our nation. Thank you very much and good morning.
Thank you very much, Minister. Dr. Patrick T. Harker took office on July 1st, 2015, as the 11th president and chief executive officer of the Federal Reserve Bank of Philadelphia. He was reappointed for his second five-year term effective March 1st, 2021. In this role, Harker participates on the Federal Open Market Committee, which formulates the nation's monetary policy, policy which we and the Bahamas have an interest in given that our dollar is pegged to that of the United States of America. I sometimes tell people we borrow monetary policy from the US because of it. Before taking office at the Philadelphia Fed, Dr. Harker was the 26th president of the University of Delaware. He has a PhD in civil and urban engineering, an MA in economics, and an MSE and BSSE in civil engineering, all from the University of Pennsylvania. I might note that he is a Philadelphia Eagles fan. Congratulations, sir. He's also a former football player. And so I want to welcome right now Dr. Harker to keynote for us.
Well, good morning. And yes, I am wearing the Eagles tie, so just so you know, we're still celebrating. Thank you so much. It's a real pleasure to join you at this conference. This is the last time I will be attending a Global Interdependence Center event as president and CEO of the Federal Reserve Bank of Philadelphia, given my upcoming retirement. My term ends at the end of this June. So please, for the last time, allow me to remind you of something we do at the Fed. It's somewhat of a Fed tradition: the views I am about to express are my own and do not necessarily reflect those of anyone else, and none of my colleagues throughout the Federal Reserve System or on the Federal Open Market Committee. In other words, you can't say the Fed said; you can say Pat said. That's the rule. I also want to express my real and sincere thanks to GIC and Executive Director Jill Fito for bringing us together. It's an incredible organization, so I'm really proud to be here. GIC's work to enhance understanding of the underpinnings of global economic conditions through convenings like this, whether we be central bankers, academics, private sector economists and experts, or university leaders, has prepared us to knowledgeably face challenges and find opportunities. And as president of the Philly Fed, I feel somewhat an obligation at this moment not just to brag about the Eagles—I did that, check—but also to mention our fair city's most celebrated citizen, Benjamin Franklin, who is widely quoted to have said, 'An investment in knowledge pays the best interest.' Now, he said those words before the United States was even the United States and over a century before the Federal Reserve System was established, but leave it to good old Ben Franklin to provide timeless guidance. So I sincerely hope that the time we are investing together now will similarly pay interest by presenting ideas on how we can together foster greater global economic stability and growth. And now that I've uttered the 'I' word, I might as well get to my outlook. So where are we? As you know, two and a half weeks ago, the FOMC voted to hold the policy interest rate steady at 4.25 to 4.5%. Even though I'm not a voting member of the committee this year, I was fully in support of that decision. And really, across the final three FOMC meetings of 2024, the committee decided to reduce the policy rate by a full percentage point. In doing so, we recalibrated the stance of monetary policy to a point where it remains restrictive but less so than last summer when the policy rate had been above 5% for more than 12 months. The recalibration has left policy, in my view, in a good position for the road ahead. Now we need to remain data dependent, looking for underlying conditions and making decisions based on our best assessments of the outlook and risks. So let's parse this a little bit. Look at inflation. PCE inflation, specifically our preferred measure, the December-to-December annual rate of 2.66% headline and 2.8% in the core categories, largely met expectations. Now, the latest Consumer Price Index, CPI, that data for January pointed to a bit of a bump for prices. Again, I must say, though, in January in the last decade, CPI inflation in January has surprised to the upside nine out of 10 times. I think that's worth keeping in mind. January we need to really look at and try to factor in something that's going on with that measurement this past month. So my conjecture is that seasonal adjustments are struggling to keep up with our very fast-changing economy, and we need to parse the underlying trend from the month-to-month noise. We need to look beyond just a single month. Now, to be sure, inflation has remained elevated and somewhat sticky over the past several months, both in overall and core figures. But that notwithstanding, I do believe that our current positioning will bring inflation back to target in the next two years if conditions broadly evolve as I expect. Now, if we were to look at monetary policy as we would a gauge on our car dashboards, the needle would still be pointing to the restrictive side, albeit less so than it was five or more months ago. We need to continue letting monetary policy do its work and letting the data roll in. But indeed, there are also upside risks which we cannot easily dismiss, which I'll touch on in a moment. So let's turn to labor markets. Labor markets have largely returned to balance in the United States. Last year ended with a stellar report for job growth, and this year started pretty well too. So the signs indicate hiring has continued at a decent clip. So I am concerned when I hear or read observers referring to the job numbers as representing a slowdown in hiring. You hear this a lot. Well, yes, it is slower when compared to the torrid paces of growth in the months coming out of the pandemic. Some job seekers may be taking longer today to find new employment than they had, say, in 2022. But the numbers imply that persistence pays off and workers are finding jobs. And in an overall historic context, I'd suggest that the labor market has recalibrated to where it was roughly in 2018-2019. And I don't know many of us who would argue that the labor market was in poor shape then; in fact, quite the opposite. Now, surely it is our nature to want to parse out month-over-month fluctuations—that's what we do—but as I said earlier, I am more interested in trends gleaned by looking over a longer time horizon than I am from noise from a single report. In the labor picture, one thing I see is average monthly employment creation over the entire course of 2024 largely mirrored the pace of growth in the years immediately preceding the pandemic. The unemployment rate remains low and is about in line with my projections. Meanwhile, GDP growth has similarly continued to pace, with 2024 proving the American economy more resilient than some forecasts had predicted. And while fourth-quarter growth came in lower than the previous quarter, the economy stood firm, especially in the face of an October highlighted by a major labor strike and multiple natural disasters. And yet again, consumers came in with another strong quarter of spending. The resilient consumer—that's really the story here, even if there are some clouds in the distance that we should not ignore. And I want to touch on that as well in a minute. I would also point to the Philadelphia Fed's own Aruoba-Diebold-Scotti Business Conditions Index, which measures a slew of high-frequency indicators. This index has been moving upward since October and has been tracking in generally positive territory since late November. As we started the year, the Philly Fed's January Manufacturing Business Outlook Survey, or what we call 'MBO,' registered its biggest jump in current activity in nearly four years. Now, obviously, one month does not a trend make, so I will certainly be looking at the release of this month's MBO later this week for greater guidance. All in all, the current data paints a picture of an American economy that continues to function from a position of strength. Now, let's be clear: inflation is still elevated, and the mission is not yet accomplished. But I am encouraged by both the longer view, which clearly points to disinflation in the last two years, and the zoomed-in view, seeing key categories like shelter moving in the right direction, albeit slowly. GDP and production remain resilient, labor is largely in balance, and these are reason enough in my mind for holding the policy rate steady. And while I will not commit to a specific timetable, I remain optimistic that inflation will continue a downward path and the policy rate will be able to decline over the longer run. This does not mean, however, that there are not areas of potential concern. In fact, the only thing I can say with any certainty is that there are many uncertainties. That's the world we face. Upside risk to inflation and downside risk to employment remain in balance. With regard to inflation, we simply do not yet know what, if any, impacts we may see from new economic policies and priorities, whether they be domestic or foreign in nature. And we just don't know their impact. As a reminder, and this is really important, it is not the Fed's role to devise, let alone comment upon, any such policies. That's not our mission. Our role is to use the monetary policy tools at our disposal to ensure we can meet our dual mandate within those chosen frameworks. And there are risks from entirely non-governmental happenings as well, such as the impact that avian flu may have not just on the prices of eggs but also on the products which rely on eggs for production. Everybody's talking about eggs suddenly in America. Moreover, I must acknowledge that as far as I can stand here and say that the American economy is operating from a position of overall strength—and I think that's true on average—there are many, many families and businesses for whom that pronouncement rings somewhat hollow. They're not seeing it. In fact, I see some of the basis for their sentiment in the data we collect at the Philly Fed. For example, the Philly Fed has access to a long data series looking at consumer credit. In the aggregate, overall credit card delinquency rates have been moving sideways, but our staff has found an increasing practice of consumers making only minimum payments toward their credit card balances, with more than one in nine active accounts now making just the minimum monthly payment. Now, certainly not every minimum payment will become a missed payment, and every account is going to fall into the hole of delinquency. Some consumers surely will cure their accounts and clear their balances. But the data show the increasing stress that many consumers are facing in managing to keep their heads above a financial waterline. Our Consumer Finance Institute recently conducted a survey in which it asked individuals expressly about the cost of their home or renters, health, and auto insurance premiums. The CFI report of the survey is not yet final, but I do want to share some of the insights in that report with regard to homeowners insurance specifically. First, insurance holders reported increases in their premiums over the prior year at a higher rate than any other insurance product. Moreover, more of them described the increase as significant. Second, homeowners were much more likely to have taken on a higher deductible as a means of managing the increase in premiums. In other words, they are willing to take financial risk in the future, betting literally the house, in order to improve their liquidity position right now. Now, when it comes to the inflation indices, whether you are looking at CPI or PCE, insurance costs may not carry enormous weight within your overall equations. They don't. But around kitchen tables, they do. And especially among households which are already feeling financial stress. And as GDP has been buoyed by the resilience of consumer spending, it does raise a concern as to how long this appetite for spending will persist. Now, at the moment, these are still just clouds on the horizon. Whether they dissipate or gather is still, pardon the pun, up in the air. We just need to make sure we're watching very carefully, because while there certainly is no virtue in acting too late, there's also no virtue in acting too soon. Against this backdrop, the responsible play is to watch the hard data as they come in, along with the soft data we glean from our contacts, listening to the story they're telling us, and then acting accordingly to the moment. Now, I only have three more FOMC meetings to attend before my retirement, but this is the playbook I will be following. Between our January meeting and the next FOMC meeting in March, we will have received two additional CPI and PCE readings, along with two months' worth of employment reporting. That allows us ample time to read deep into a whole lot of data, and that's a good thing. In this work, we disengage from hypotheticals and we need to focus on realities. It's easy to play the hypothetical game, but we need to focus on what is facing us in the hard reality. The more data points we have, the better these realities come into focus. Our actions, let alone our public pronouncements, cannot be based on conjecture; they have to be based on fact. And by 'us' and 'our,' I do not mean those of us sitting around the FOMC conference table, but I really include all of us here. So I want to thank you for allowing me these few moments. And Bill, I think we're going to have a conversation.
As Bill comes to moderate our Q&A, let me just correct that I should have allowed him to bring a welcome. So, William Kennedy, who is the CIO of RiskBridge Advisors and GIC Board Chair Emeritus.
Good morning. So protocol has been said, let me just jump to the punchline. Thank you for being here, thank you for a very warm reception. Our second year in a row; we weren't sure if we were going to be invited back, Mr. Lang, but thank you. But we are very, very grateful to the government of the Bahamas, the University of the Bahamas, President Harker, Mr. Lang, for your very warm reception. So thank you very much. It's a pleasure to be here. So our protocol: we're going to take a few minutes to go through a Q&A. We will not be taking questions from the audience, however. President Harker will be available later during the break and also later this afternoon, and I encourage you to corner him over a cup of coffee and get the rest of the story, as they say. So let me kick off with a question, President Harker. Just thinking about the Fed's mandate, the dual mandate between employment and stable pricing, you talked a little bit about where we are today, but when you look forward over the next 12 to 18 months, how do you think of that balance between the two?
So given the current policy environment we face, I think they're roughly in balance. I mean, inflation is slow to come down. Some of that's driven by shelter inflation, but we know in real-time rents, if you look at Zillow indices and other indices, those numbers are going to start coming down as well. We're going to talk about mortgage rates and the 10-year rate in a little bit, but that is the one thing that's propping up that cost. Also, that insurance premium I just talked about is...
When you wrap that into your mortgage payment, your monthly mortgage payment, it's pretty substantial. I mean, some of the increases that people are seeing are quite large. And what we're seeing is in certain markets, insurers are simply pulling out. They're not even underwriting insurance. So that has become a real challenge when it comes to shelter broadly. So I do think we are moving slowly down. That's our base case. But as I said, there are risks there. And again, there are changes in policy, domestic and international, that could have a significant impact on inflation. But at this point, we don't really know what those are. I mean, honestly, there's a lot of speculation about what those policies might be and what the impacts might be, but they're not finalized. So we just simply can't speculate on what might happen. Labor market again looks pretty solid. I mean, this is where people say, 'Oh, the labor market's slow.' Not historically. It looks pretty good. I mean, again, there are some signs and there are some issues, and we can talk about those as well. But I think things are pretty much in balance right now. That's going to be subject to a lot of change, policy changes, and we'll just have to act accordingly.
You had a great comment about the only certainty is uncertainty. As a policymaker or for the FOMC in general, just take us in the room. Help us understand in a world of greater uncertainty, how is policy made? How do you get to balancing fact, opinion, narrative, and expectation?
That's a good question. So again, I can only speak for myself, but I can tell you what we learned. I think when the pandemic hit, we were scurrying to get more real-time data, just data that could give us a sense of what's happening on the ground right now. The survey I just mentioned that we launched in Philadelphia, the Consumer Finance Institute survey called the Life Survey, this is a much higher frequency survey. We started this in the pandemic just to see how households were coping, and now we've made this a regular part of what we're doing. What we learned out of all that, whether it was getting Google data on commuting patterns, OpenTable reservations, whatever it was, bringing massive amounts of other data other than the traditional things we would look at in terms of unemployment and inflation indices, that hasn't gone away. So now I think we're more accustomed to using a wide array of data. And some of that, as well, I wrote a little opinion piece a few months ago on our website about this, the use of soft data. Because the data we have is backward-looking almost always, the hard data. You also have to look at survey data, other information. For example, we started to hear from our contacts early on that inflation was not just about used cars and a couple of other categories. And so I started to be an advocate early on that we needed to start bringing the policy rate up sooner than I think others had. And some of that was based on the fact that the hard data wasn't telling you that, but if you listen to people, if you listened to survey work, one of the beauties of the Fed in our structure of 12 Reserve Banks scattered across the country is I get to spend a lot of time in my district sitting down with business leaders, nonprofit leaders, government leaders in small towns and large cities. And you get, after a while, a pretty good sense of the pulse of what they're facing. You know, Bob Solow's old comment: 'The plural of anecdote is not data.' I get that. But if you hear lots and lots and more and more stories, you start to get a sense that, yeah, no, this isn't just about used cars. So I think what we need to do, and I think we've gotten better at this as a system, is integrating all that data together. I think there are actually research opportunities here for the economics profession to create more formal methods of how to integrate that data through machine learning, AI techniques. So I think there's a real opportunity, and some people are pursuing this right now. But that is an area that we learned in the pandemic that we need to keep pressing that pedal, getting as much data as we can, soft and hard.
And given the data that you've seen, I think you alluded to it in your prepared remarks. Are you more hawk or more dove at this point? We know you're 100% eagle, but are you more hawk or more dove?
I am an avowed radical pragmatist. I think that in this role, the media has put me in the camp of a dove, they've put me in the camp of a hawk. I'm actually comfortable with that because I just try to call it like I see it, look at the data, and make a decision based on that, and not come into it with a certain ideology. Because I just think that rarely plays out the way you think it will if you're going to be an ideologue about it. So I try not to do that.
Thank you. So one of the important tools at the Fed's disposal is the balance sheet. There's a question of the size, there's a question of the mix, and the rate of change in both. Can you speak to, particularly the reserves, the bank reserves that reside on the Fed balance sheet, path forward, and what's the current thinking about the use of the balance sheet as a policy tool?
