April 8th, 2022

The CFA Society Boston hosted its 36th Annual Market Dinner on March 31st, featuring Roger Ferguson as speaker. Mr. Ferguson is the former President and CEO of TIAA, having been in that role from 2008 through 2021. TIAA is the leading provider of retirement services in the academic, research, medical, and cultural fields. At TIAA, he long focused on financial well-being and security, most recently leading the 17,000 employees of the financial provider, which manages $1.3 trillion in assets, through a shift to remote work during the pandemic.

Mr. Ferguson is also the former Vice Chairman of the Board of Governors of the U.S. Federal Reserve System. For ten years as Vice Chairman of the Federal Reserve, he served on several key Federal Reserve System committees, including Payment System oversight, Reserve Bank Operations, and Supervision and Reservation. As the only Governor in Washington DC on September 11th, Roger led the Fed’s initial response to the terrorist attacks, taking actions that kept the U.S. financial system functioning while reassuring the global financial community.

Before his role at the Fed, Roger was head of financial services for Swiss Re, a Partner at McKinsey & Company, and an attorney at a New York law firm. He is currently a member of several Boards, including Alphabet, Inc., General Mills, and International Flavors & Fragrances, is a fellow of the American Academy of Arts and Sciences, and a member of the Smithsonian Institutions’ Board of Regents. He holds a BA, JD, and Ph. D in economics, all from Harvard University.
In a fireside chat with Brent Bell the CFA Society Boston Chair, Roger was asked to address leadership in a crisis, both post-covid and in the midst and beyond the headlines of today. Robert T. Stephenson, J.P. Marvel’s Executive Vice President and Director of Research, attended the CFA Society Boston event and provided the following report:

“The meeting started with Roger at the podium giving prepared remarks. He started by stating that the words most people have on the tip of their tongue when discussing the economy are inflation, stagflation, and recession. In fact, he said the Fed told everyone on March 15th that they are most worried about inflation and, based on all the metrics he sees, he agrees with the Fed. He noted that the Fed does not appear to be worried about a recession at this time and they did not even specifically discuss stagflation. He noted that, since that meeting, Fed Chairman Powell has taken a more hawkish tone and there is more of a discussion around potential fifty basis point moves up instead of just twenty-five basis points.”

Roger then noted that there have only been two time periods where inflation, recession and stagflation were all possibilities at the same time. The first time was after the second World War. During the second World War there was pent up demand that built up as they were waiting for peace to break out. From June 1946 through 1947, inflation was 14%. Then there was a short recession in 1948 before worsening in 1949 and 1950, when inflation picked up again during the Korean War. Between 1950-1951, there was 21% annualized inflation. At this time, starting in 1950, the Fed made a slight policy change and told the President they would do what they want, not what the President wants.

The second time this happened was between 1965 and 1981. This period was called the great inflation. The Fed, for a variety of reasons, allowed inflation to gradually get out of hand. This finally ended when Paul Volker came in and raised rates significantly. Among the many reasons this happened were the aftereffects of the Vietnam War and two significant oil shocks in 1973 and 1979.

Mr. Ferguson believes these issues are happening again, but now with two key differences. First, previously there was no anchor set in terms of inflation. Today we have a goal of 2% inflation, around which we have stayed for some time. Second, there were times in the past when the Fed had totally lost its credibility. Now, apart from the past year, the Fed has a good reputation and record on managing inflation. Here he concluded his prepared remarks and went into a question-and-answer period.

From the Q & A run by Brent Bell, he had the following comments. He noted that full employment has always been a goal and a mandate since the 1970’s. Also, while they used to focus on the labor rate, they would not pay much attention to labor participation rate. That is no longer the case, as the labor rate is no longer much of a focus. He stated that the labor participation rate gone down since the pandemic and thus unemployment is going to have to rise. He said they will have trouble fixing this issue as they raise rates.

Mr. Ferguson was asked about his thoughts the Russia-Ukraine conflict and the Western response of sanctions and a pull back in business with Russia. He said this could mean many things. He noted that the US dollar is the world’s reserve currency, and the US also has some of the most productive companies in the world. He keyed in on the news that Russian banks have been kicked out of the SWIFT banking system, which is meant to be a blow to the Russian financial economy. He stated that there are three things to note from these sanctions. First, China will point out that you can get kicked out of SWIFT and be okay. In fact, China has their own system which they may allow Russia to participate in. Second, the SWIFT ban is also meant to keep Russian oligarchs from reaching their capital, which may lead to them keeping more currency in Bitcoin. This leads him to believe that as an emergency for some, Bitcoin could be more interesting. Third, with respect to questions of creating trading units that are not dollar focused, he noted that Russia and China are participating in trading that does not involve dollar reserves.
When asked about his thoughts on desire for growth versus willingness to take risk, he said he is in favor of taking risks, but they must be reasonable. He feels that one would not last long without taking risk for a chance to grow. He said one of the roles of a board is to force or ask management how they are balancing risk versus growth and that they should look at it with a long-term view, not quarter to quarter. Downside is failure… but failure is an integral part of risk taking.
He was then asked about retirement vehicles. He said that everyone has a retirement vehicle in Social Security, but it is at risk to run out of money. He expects that it will run out by 2035, which just means it will not be able to pay out the full benefit people are owed. He said, instead, people will only receive around 75% of promised benefit. With respect to 401K’s, this was never meant to be more than a supplement to retirement planning since not everyone is required to participate. He said it is not automatic but believes it should be.

The meeting concluded when he was asked, given all he has accomplished, what he would want his legacy to be. After a joke, he said he wanted to be remembered as someone who improved the organizations at which he worked. A big believer in work, he thinks that work is what life is all about and that the purpose of work is to strive towards improvement.