ECONOMIC TRENDS IN THE R.I. ECONOMY | PBN SUMMIT
Sometimes the the most important important connection is aa human one. one. GOING UP? Thomas Tzitouris, director at Strategas Research Partners, forecasts that 30-year mortgage rates may hit 3.5% by the end of the year, which he said would end the wave of refinancing activity and slow home purchases in 2022.
‘This is one of those key moments’ BY NANCY LAVIN | Lavin@PBN.com
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 alreadyweakened 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. 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 longterm 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 SEE KEYNOTE, PAGE 21
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