Compass Money: Janet Yellen Speaks at Georgetown

JANET YELLEN SPEAKS AT GEORGETOWN

The Hilltop cordially welcomed Dr. Janet Yellen, an American economist most well known for her former role as chair of the Federal Reserve, to speak to an audience in the Lohrfink Auditorium of the Hariri Building of the McDonough School of Business on April 15. She presented on the past, present, and future of monetary policy.

The lecture commenced with a reflection about her career at the Federal Reserve. Yellen recounted witnessing the market’s booms and busts closely when she worked under Chairman Greenspan. When the recession hit in 2008, the huge toll of the financial crisis dragged the economy to a post-war-like condition. The primary goal, she explains, was to ensure a fast recovery of the labor market. She expressed satisfaction with the fact that the current unemployment rate is at a 50-year-old low, but also expressed concern for a lowering prime age employment rate.

In addition to explaining the role of expectation in consumer’s actions, she highlighted the importance of maintaining a steadily low rate of inflation as an effective monetary policy tool. However, it is important that this rate stays positive, because if it were to sink to a degree of deflation, the Federal Reserve would no longer have the ability to slash rates further to stimulate investment.

Yellen then recounted the scaling-back policy determined by the Federal Open Market Committee (FOMC), which raised rates five times during her term and has led its current rate of 2.5 percent under Chairman Powell. The higher rate signifies a more prosperous American economy and testifies to the success of their effort.

Yellen is optimistic about the economy’s future, predicting an upward trajectory in considering its new liquidity requirement, regulated asset purchases, and more experienced and flexible policymaking. It enables the Federal Reserve to promise low rates in the long term and promote a even faster recovery.

To prevent another financial crisis, Yellen stressed the importance of financial regulations, including closely monitoring big banks. Not only do they need to hold bigger reserve buffers, she asserts, but they should not be allowed to conduct unlimited share buyback without passing certain stress tests. She concluded the lecture with policy suggestions for the future of the economy, such as increasing capital requirements and developing more risk-resilient stress tests, targeted ratios, and mature emergency lending measures.

Yellen maintained composure throughout the entire event and offered relatively conservative answers during the Q&A session, which harks back to her position as the Fed Chair, as she was often looked to by investors looking to make decisions in the light of shifting expectations in monetary policy.

COULDN’T KETCHUP

While changes in consumer tastes towards healthier options are probably good for public health, they have costed many food-industry CEOs their careers. Benando Hees announced his resignation on April 22, which is not surprising given the wave of 15 CEO resignations within the industry since 2016. In addition, Kraft Heinz’s stock has plummeted 20 percent during 2019, but climbed two percent after the announcement.

Industry growth amongst legacy food brands in the U.S. has flatlined since 2015 to around one percent. New competitors, such as Kind and BodyArmour, have suffocated growth opportunities while also being too expensive to purchase or unwilling to merge. Initially, many of these brands were purchased by larger legacy brands and remained untouched, creating what are known as “stealth small brands.” However, Heinz’s second-largest investor, 3G Capital, has been heavily focused on cutting costs. Some speculate that this has hurt the brand investment and that this is why Kraft Heinz has not purchased any of these smaller brands. Kraft Heinz was born as the result of a merger between 3G Capital and Berkshire Hathaway in 2015 before this rash of resignations.

Miguel Patricio, who oversaw the Anheuser Busch InBev merger in 2016, has been announced as Heer’s replacement. Patricio has been InBev’s CEO for the last twenty years, surviving much longer than most of his contemporaries in the food and beverage industry. Patricio acknowledged that his product portfolio at ABInBev differs greatly from what he will be working with at Kraft Heinz, which will be especially important with regards to marketing, Patricio’s specialty and a key component in Kraft Hein’s struggles. Patricio has stated he will focus on “improving Kraft Heinz’s speed, organic growth, brand building and making the company more consumer focused.”

Victor Martino of Just Food has written on the struggles of legacy brands and how he believes they can adapt. He states that while legacy brands are dominant in all categories, growth has stalled and various smaller competitors stand prepared to reclaim the mantle in the not-so distant future. Martino suggests that legacy brands focus on iconic and indulgent tastes that are also familiar. In addition, increased transparency of ingredients is needed to build trust with consumers, provided that this can be incorporated into the brand’s legacy. Martino also argues brands must be more cognizant of emerging trends in consumer eating behavior. Throughout this, he argues that while legacy brands need to be current, they cannot abandon their core strengths. An example he used to illustrate this was Lucky Charms (owned by General Mills) which saw sales grow up by 20 percent thanks to new Unicorn Shaped Marshmallows in the midst of a low carb trend. Lastly, CircleUp CEO Ryan Caldwell adds that even in the face of huge sales, Legacy Brands need to learnto use its ample resources to better understand how to adapt in innovative ways. As an example, he suggests that, “‘Instead of Pepsi thinking about a lower fat potato chip, they need to be rethinking the snack category as a whole.’”