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Optimists Speak Out in Wisconsin

By: Kari English

Wisconsin Governor Scott Walker is optimistic about the state’s future. At the Wisconsin Bankers Association’s annual economic forecast luncheon on Jan. 10, 2013, Walker asked the audience to consider where the state had been a couple of years ago.

“In 2011, we had a $3.6 billion budget deficit and had an unemployment rate of 7.5 percent,” Walker said. “A mere 10 percent of employers surveyed said the state was headed in the right direction.”

Today, Wisconsin has a $341 million surplus, it has set money aside in the rainy day fund for the first time in two consecutive years and unemployment is down to 6.7 percent. In addition, in 2012 94 percent said Wisconsin was headed in the right direction. Walker credited the turnaround to making tough but prudent budget decisions. “We thought more about next generation not the next election,” said Walker.

One of the governor’s top priorities for the next couple of years is to create jobs. Walker said his goal is to create 250,000 more jobs in the state. “Why that particular number and why do I feel it’s so important? Big reason: For every kid in this state, I want to make sure they inherit a state at least as great as what I grew up in,” said Walker.

Another top priority is to develop the state’s workforce. One of the great assets in Wisconsin is the quality of its workforce, according to Walker. But it is also a challenge in key clusters — manufacturing and healthcare, for example — because there are huge gaps in the number of available jobs and the number of people with the right skill sets to fill those jobs.

“We’re trying to do a better job connecting the dots,” said Walker.
A Broader Outlook

Federal Reserve Bank of St. Louis President and CEO James Bullard provided a 2013 outlook on monetary policy during the luncheon.

“There has been a lot of change in the last six months in U.S. monetary policy,” said Bullard

One change is that there are two parts to monetary policy now, whereas there used to only be one, according to Bullard. Besides maintaining a policy rate near zero since December 2008, the Fed is also buying U.S. government securities and mortgage-backed securities as part of an aggressive asset purchase program.

Another change is the threshold policy. Previously, the FOMC would provide a date when an increase in the fed funds rate would occur.

“That’s counterproductive,” according to Bullard. “The date could be interpreted as a statement that the U.S. economy is likely to perform poorly until that time,” which he called an “unwarranted pessimistic signal.” The committee did not intend to send such a signal, according to Bullard.

So the committee has switched to a threshold approach, which means as long as inflation stays low (around 2.5 percent) and until the unemployment rate reaches 6.5 percent, the FOMC intends to keep rate near zero.

“It just depends on economic conditions,” Bullard said. Either of these thresholds could be crossed at any time and the committee would have to change its policy; it is contingent on what actually happens to economy, according to Bullard.

Turning to balance sheet policy, Bullard said QE3 was taken on as open-ended program and with more accumulation and therefore will be more effective than previous programs.

Between QE3 and thresholds, Bullard believes the country has a more accommodative monetary policy now than even six months ago. However, the clear intention is to end the balance sheet expansion before raising policy rates, i.e., sometime before the country reaches 6.5 percent unemployment.

Speaking of unemployment, Bullard noted that it has improved over the past three years despite sluggish GDP growth. “I project a continuing downward trend in unemployment,” he said.

Bullard also discussed the reduced headwinds and reduced uncertainty in the United States. “The U.S. housing market has improved during 2012 and I expect this will continue in 2013,” he said.

In addition, he noted that some aspects of the U.S. fiscal situation have been addressed and that he expects more to come. Furthermore, “Growth in emerging markets will likely improve in 2013 relative to 2012,” he said.

Finally, the European sovereign debt crisis has recently been less disruptive for global financial markets, Bullard stated. “Euro-area growth will probably not deteriorate the way it did in 2012.”

Bullard said his projection for real GDP growth in 2013–2014 is around 3 percent.