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THE OPENING BELL As Heard On WGN 720 AM Chicago

5 Things to Know About the State of the Economy Right Now

Rod Murray, Group Senior Vice President of Commercial Banking for Illinois, Texas, Indiana and Ohio, shares his insights into what’s making the economy tick right now. After Fed Chair Janet Yellen’s testimony to Congress in July, one of the big items many are speculating about is whether rate hikes will continue in the same pace as the last six months or whether they might be scaled back. Inflation has not risen to the rate the Fed is typically comfortable with for aggressive actions.

“Going into that discussion, the FOMC (Federal Open Market Committee) members believed that there were four (rate increases) to come by the end of 2018,” Murray said. “I think we’re looking for one still this year and three more next year. The markets (however) had not predicted that on the futures, the chances were a lot lower. And I think that (it) is probably more of the case now … that it might not be quite as quick or as many (increases as originally expected).”

2% inflation is the goal

Two percent inflation is the target the Fed uses to gauge economic well-being over time, since it’s a rate of inflation that’s fairly stable. Higher rates can signal more volatility in the economy. Much lower than that, and the Fed worries prices and wages could weaken too much.

“… They also have to watch what the inflation number is and to the extent that you can get to a 2% number, that is more normalized and is easier to then control the economy with what the Fed fund rate is,” Murray said.

Janet Yellen’s term ends next year.

President Donald Trump has expressed interest in nominating Gary Cohn, director of the National Economic Council, as a possible replacement to Yellen, whose term is ending soon. While some have speculated she could return to her post, Kohn represents a very real possibility for taking over.

“Gary Kohn won’t surprise me at all,” Murray said. “The term expires in February, the current administration, there’s been a little bit of waffling on extending or replacing, but I won’t be surprised at all if that happens,” Murray said.

We may know who the first person will be to permanently hold the position of Vice Chair of Regulation at the Federal Reserve.

Trump has expressed interest in Randal Quarles for this top banking regulator post.

“So the top banking regulator position was created in 2008 and there’s just been a temporary fill for now from the former Fed governor,” Murray said. “This position is the supervisor really of the Fed and of the financial markets and of the banking regulations. That’s probably the most important piece of it – is what happens in the regulatory environment, how does he deliver, how does he enact on the current administration’s policies that they’re trying to implement with rollbacks or changes to the regulatory environment.”

Keep an eye out for Kabbage

In an industry where digital offerings are increasing all the time, one to keep an eye on is online financial loan program Kabbage. Small businesses can easily apply via computer or mobile device and receive an answer quickly.

“Kabbage with a k, it’s a micro-loan program that you can apply for small loans and their response time, I believe they promise 15 minutes if I remember correctly, … and it uses more of FICO scores, your credit scores, it comes at, of course, a higher premium of a rate, but for smaller loans (you) end up with a quicker response,” Murray said.

“It’s more written to have a streamlined process, reduce paperwork and kind of get right to a quicker answer on their specific ask … it’s micro loans probably or small business loans, at least on the front end of things,” Murray said. “But for the future that could certainly change the way that business loans are evaluated, done and made.”

You should be paying attention to the state of the budget in Illinois.

Illinois’ budget has been in the news a lot lately. And some businesses are expressing concern.

“The overarching comment that we hear from a lot of our business owners is missed opportunity,” Murray said. “You see that the budget with the income tax increase didn’t come with anything else that was in a lot of our business owners’ eyes that was material to promoting business in the state of Illinois or reducing some of their other costs. So that is the overarching theme.”

“Now in the grand scheme of things, the corporate income tax increase is only affecting probably 25-30% of companies, most don’t pay Illinois income tax. However, the majority of the businesses that we deal with that we see every day are LLCs or sole proprietorships, so they’re paying rates at the personal tax rate, which while it went up, it’s still modest comparative to some other states. So a few of the companies are paying the most of that income tax increase – but again, it just didn’t come with everything that our business owners were wanting.”

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