I had intended to take this time to highlight Fed Chair Neel Kashkari’s new essay explaining his current views on our economy and interest rates. This is a follow-up to a February 2024 essay and the latest in a series he’s shared since 2022. Bottom line: Our economy continues to send mixed signals, making it difficult to assess whether our policy stance is tight enough to bring down inflation. Kashkari thinks it’s possible that the “new normal” neutral interest rate—that which neither stimulates nor slows the economy—may be higher than it was pre-pandemic. The housing market continues to show surprising strength as well, despite the significant tightening over the past two years. But I can’t ignore a few issues in the policy space that have me flummoxed. First is the need for the legislature to act to ensure Uber and Lyft don’t leave Minneapolis – and Minnesota. I’ll simply refer you to a good Star Tribune op ed written by Jonathan Weinhagen. “The Minnesota Legislature is set to adjourn in about a week. If it does so without repairing the damage inflicted on our region's businesses and reputation by the Minneapolis City Council pushing out Uber and Lyft, the negative impact will be dramatic.” Absolutely. Stunning to me that it seems to be going in the wrong direction. Second is the Extended Producer Responsibility (EPR) legislation, HF 3577 / SF 3561, which continues to move forward and is close to passing. This bill would:
Finally, the Labor Policy omnibus bill (SF 3852) would hurt small businesses by removing the small business minimum wage designation from state law and doubling the annual automatic minimum wage inflator from 2.5% to 5%. In this tight labor market, most employers are paying well above minimum wage. And that's how it should be - market forces or deliberate policy discussions should determine minimum wage levels, not arbitrary annual inflators. This bill will stress small business budgets by requiring significant annual increases and removing the small business designation. This will make it harder for businesses to grow, negatively affect employee benefits, and increase prices for consumers. CLICK HERE to ask your legislators to support small businesses by voting NO this bill! See you in the trenches, B
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Great news for Saint Paul, Union Depot, and the region overall – a second Amtrak train route is on its way! We’ve been talking about this for over 10 years - I remember first learning of this when I was at the Port Authority…. I am very excited about this project.
Amtrak will begin running the second train on May 21. The new train will depart Saint Paul midday, providing traveler flexibility on top of the current 8am eastbound train. These "Borealis" trains are sponsored by the States of Minnesota, Illinois, and Wisconsin. You can visit Amtrak.com to learn more about pricing, route, and passenger amenities. This announcement is welcome, at a time otherwise fraught with uncertainty as it relates to real estate, particularly downtown. We’ve got large tenants relocating, and the entire Madisen Equities portfolio is now on the market. I am ever the optimist: we have a real opportunity to be strategic in our response to the current environment. Saint Paul is an undervalued real estate market. I like the proposed idea of converting Class C commercial real estate into housing, and seeking an incentive from the legislature to facilitate the transition. I also like the idea of new property owners, interested in investing in their buildings, caring for their tenants, participating in the Downtown Improvement District to invest in improved safety and cleanliness. We have a transformational season before us. As I’ve said before, the downtown plays an outsized role in the region’s economy; both a second train and the opportunity to repurpose downtown real estate can only add value to a more stable regional economy moving forward. See you in the trenches, B This past Friday was the inaugural Small Business Summit and Expo, Presented by Wells Fargo, a collaborative effort between the MN Black, MN Hmong, and St. Paul Area Chambers.
What a powerful event it turned out to be! The event sold out with close to 300 people and 50 tabled vendors. We also invited a group of emerging entrepreneurs, thanks to Ramsey County’s sponsorship of this priority. I wandered through the vendor area, saw an amazing array of businesses (both large and small!), the volume high as the hall was full of people networking. Our lunch panelists were entrepreneurs who shared their own business stories, and the animated conversation was moderated by Tracey Williams-Dillard from the Minnesota Spokesman-Recorder - an entrepreneur in her own right. People didn’t want the panel to end! My message to everyone in the room, mixed up all together as we were: what we are doing together is extraordinary. Historic, even. Together we are building a stronger tomorrow. Today’s large businesses all started humbly, with an idea shared between just a few people. We are charged to do what we can to promote the innovation and entrepreneurial energy in that room and in this region. Thank you to everyone who suggested this event, took a chance on participating, and were moved enough to tell me how much the day meant. See you in the trenches, B This past week we co-hosted a compelling event with the Minnesota Chamber of Commerce on Environmental Permitting recommendations. The Minnesota Chamber Foundation has published research on this, and we invited Jennifer Byers, Executive Director of the Foundation, to speak. Compelling and convicting at the same time.
The study compares Minnesota’s permitting processes to those of peer states, outlines differences in outcomes, and provides recommendations for improvement (without lowering our state’s environmental standards!) I strongly recommend you read it yourself, particularly as there is legislation being considered this session that will impact this. If you remember, a favorite expression of former Governor Dayton’s: “permitting at the speed of commerce.” Once you read the report, you’ll find that is not happening in Minnesota. You can find “Streamlining Minnesota’s Environmental Permitting Process,” here. Greetings! What glorious weather we’re having! This week I’m looking at economic trends ahead for the year, what I’m hearing and reading. And last week, of course, the March national jobs report was released. Overall, the news is modestly positive. The U.S. economy continues to show signs of strength and resilience with stable GDP growth and mild inflation despite ongoing higher interest rates. March marked the 39th straight month of job growth and a much larger gain than forecasted. That said, economic growth – though positive – will remain sluggish until the Fed cuts interest rates. Consumer confidence continues to improve, edging closer to pre-pandemic levels. Prices continue to rise, driven largely by upward pressures on wages. Minneapolis Federal Reserve Chair Neel Kashkari addressed much of this at a town hall. Listen in!
As I indicated above, Minneapolis Federal Reserve Chair Neel Kashkari spoke at a town hall at the University of Montana earlier this month. Relative to the latter half of 2023, inflation fell much quicker and the labor market remained stronger than the Fed had expected. Both good things. His explanation? Most of the progress in inflation is due to the supply challenges unwinding. People back to work, supply chains improving, service economy reopened, goods economy remaining stable. Commodity prices relatively normalized. Inflation is running at about 3% right now; the Fed’s target rate is 2%. This is important because the Fed is less inclined to lower interest rates when inflation remains above target. The Fed’s next Federal Open Market Committee (FOMC) meeting is in June. Economists at Morningstar, Reuters, and others are anticipating a modest reduction in the federal reserve rates at that meeting. Others, as reflected in CNBC’s Fed Survey, anticipate that a reduction is less likely given the ongoing growth of the economy. So we’ll have to pay attention to June’s outcomes. As it relates to employment: the national March jobs report recently was released: employers added 303K jobs in March, National unemployment rates fell to 3.8% (from 3.9% in Feb). In many states across the country, unemployment levels have spiked… not so in MN. Minnesota’s current unemployment rate is 2.7% (latest numbers from Feb 2024), lower than the long-term nerm average of 4.73%. How does the Fed balance the unevenness as they consider a national interest rate? Kashkari’s response: “most businesses that I talk to around our region report that the labor market is not red hot like it was 1-2 years ago. But it’s still a tight labor market, still having to compete to find employees.” Still seeing upward pressure on wages. As it relates to prices: “stable” price growth, according to the Fed’s preferences, is 2% annual growth. In my talking with employers prices are rising faster than that target rate. Driven largely by upward pressure on wages. Commodity prices have been impacted as well, largely by independent influences such as the invasion of Ukraine and the Israel/Palestine conflict. The big question, then: will interest rates be lowered in June? Morningstar’s latest Economic Outlook details that falling inflation will make this pivot possible in early 2024. Slowing GDB growth (and a slight rise in unemployment, should that happen) in 2024 will add a further reason for the Fed to cut. In his latest testimony to the Congress, Fed Chair Jerome Powell reiterated policy easing would likely be "appropriate" at some point this year. But still sticky inflation and a very resilient labor market could prevent an early rate cut. At this same town hall, Chair Kashkari expressed an understanding of the economy that makes sense to me too: as we anticipate the economic direction, we act in such a way to bring that expectation to reality. Kashkari said, “People’s expectations for the future become self-fulfilling. If all of us believe that inflation is going to be 2%, then we behave in a way that helps lead to inflation being 2%.” The contrary is true as well, and I’ve heard some employers in particular markets (like real estate) use the phrase, “survive till 2025.” As consumer confidence remains high, I remain hopeful for an interest rate reduction yet this year. See you in the trenches, B |
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