While many Americans see the COVID-19 vaccine as the barometer of their year, Thomas Tzitzouris is watching a very different event to determine how 2021 will play out.
Tzitzouris, director at New York City-based Strategas Research Partners, named the fate of Federal Reserve Chairman Jerome Powell as the “wild card” for 2021.
In a keynote address during Providence Business News’ Economic Trends Summit on Feb. 18, Tzitzouris explained how differences between Powell’s treasury philosophy and that of President Joe Biden – specifically over whether to try to suppress what is expected to be a steeper yield curve due to inflation and rising interest rates – might lead to Biden ousting the Trump-appointed central bank chief.
If Biden sacks Powell in the third quarter of this year, the bond market will panic, sending the already-weakened dollar plummeting down by 60 to 80 basis points in the third quarter, and an even more severe 80- to 100-basis-point decline in the fourth quarter. This bond market “tantrum,” as Tzitzouris described it, jeopardizes not only the financial market but the country’s entire economic recovery.
“This is one of those key moments of the decade we believe materially changes the long-term trajectory of the financial market in the U.S.,” he said.
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Thomas Tzitzouris, director at Strategas Research Partners, keynote address at PBN’s Economic Trends Summit on Feb. 18.[/caption]
Rhode Island will be particularly hard-hit. Its situation was tenuous before the pandemic, due to struggles to align the skills of its workforce with the needs of growth sectors and because of credit weaknesses hampering municipal governments. And the continued consequences of structural unemployment and job losses put Rhode Island high on the list of states to see severe economic “deaths of despair” over the next decade, according to Tzitzouris.
Federal stimulus, including aid to the state and municipalities, as well as strong housing-market activity – particularly in mortgage refinancing – offer the state some temporary relief. But these solutions will only temporarily “paper over” the long-term problems underneath, he said.
“If Rhode Island has not found a long-term driver of growth by 2023, we’re going to be right back in the same position we were 12 months ago,” he said.
Tzitzouris refrained from outlining a definitive prescription of how the state might find this elusive driver of growth, encouraging a market-driven mindset.
“Stop trying to pick the successful industry,” he said. “Make the economy broadly attractive and let industries decide how to expand.”
Generally, Tzitzouris pushed back against government interference. He criticized the federal stimulus packages for “overstimulating” consumer spending and, in some cases, decreasing business investment without creating a needed long-term structural change.
At the state and local level, too, he advocated for a hands-off approach. Instead, he encouraged the state to listen to its business community, which, in his view, is continuing to complain that taxes and other fees make the cost of doing business too high.
High taxes and red tape violate property rights, he said, which, along with human rights, comprise what he believes to be the “secret sauce” to encouraging productivity, and in turn, economic growth.
One area in which state support may be crucial is support for modernizing the housing stock in the southern areas of Rhode Island, which could help attract young professionals fleeing New York City and Boston. Tzitzouris, a Rhode Island native who lives in North Kingstown and commuted to New York before the pandemic, called this a critical opportunity to grow the population, build infrastructure and drive spending to the state.
Nancy Lavin is a PBN staff writer. Contact her at Lavin@PBN.com.