The 60th Annual Investment Dinner, CFA Society Toronto’s marquee event, featured an impressive lineup of leaders in finance and economics. Held in November last year at the Fairmont Royal York, the dinner was an engaging and interactive evening, emceed by CBC correspondent, and host of Dragon’s Den, Dianne Buckner. Attendees had the opportunity to hear an impressive trio of speakers, who shared their thoughts on the current investment climate, trends to watch, and challenges that lie ahead.

There have been a number of significant events since the 59th Annual Investment Dinner: geopolitical instability both in the U.S. and in the rest of the world has caused increased volatility in the financial markets; robo-advisors and cryptocurrencies have also had a real impact on the industry. In the U.S., the Fed appears to be finally moving away from quantitative easing, and interest rates are starting to rise. Here at home, the federal government has introduced controversial income tax proposals, as well as plans to legalize the sale of marijuana. These factors, all together, have combined to create a precarious investment environment.

The first speaker of the evening was Jason Furman, professor of practice at the Harvard Kennedy School and previously President Barack Obama’s chief economist, who talked about geo-economic outlooks, business trends, and the future of globalism. Furman’s main message was that he was concerned about how few people seem to be nervous about the future state of the economy. In the short run, he said, Canadian and U.S. economic statistics are positive; inflation and unemployment figures are low, while economic growth has picked up in both countries. This short-run macroeconomic momentum may be a result of the post-2008 crisis quantitative easing.

This momentum may be difficult to sustain, however. The unemployment rate in Canada and the U.S. has been falling steadily since 2013, and is now below the pre-crisis average. Productivity has been lagging in the advanced economies, and has been slower in the last decade compared to the previous one. This lag is cause for concern because one of the easiest ways to generate growth is to put more people to work. Given the already low unemployment rate and productivity growth, however, there’s not a lot of room to stimulate the economy by employing more people. “If the productivity doesn’t pick up,” Furman said, “then we cannot maintain this momentum, because the decline in the unemployment rate is something that cannot continue to go on.”

This sentiment was supported by Bob Prince, co-chief investment officer at Bridgewater Associates. According to Prince, the most important point to understand about the current environment is that we’re in a transition period. We’ve had non-stop monetary stimulation by the world’s central banks for the past eight years; in fact, as far as investment returns are concerned, it has been one of the best eight-year periods since 1925. Now that stimulation efforts have succeeded, 80 per cent to 90 per cent of the world’s economies are growing faster than their potential. In other words, the global economy is firing on all cylinders. As a result, all five major central banks are now contemplating tightening. While the transition from easing to tightening will be a reality, the timing and magnitude of this transition remains unknown.

The intent of the central banks is to make moderate adjustments that don’t have too great an effect, but there may be room for an accident. The Federal Reserve is looking to retire $400 billion per year, for instance. The People’s Bank of China, which is as important as the Fed is to the global economic environment, is looking to reduce leverage in the system. It’s difficult to reduce the leverage without causing a downturn, however, and so there’s a risk that, as the central banks implement measures one by one, they might all take actions that, if implemented simultaneously, could adversely impact the economy.

If an economic downturn does indeed come, Prince said, then we may face a situation where monetary and fiscal policies are incapable of reversing that downturn. And the reason why monetary policies would be ineffective is that the central banks have a limited ability to reverse an economic downturn. Historically, it takes about a rate cut of about 500 basis points to reverse a downturn; since current rates are low, the central banks simply may not have the ammo to get the job done.

Another potential throttle on central banks is the rise in populism around the world; while populism may not cause an economic downturn on its own, it can certainly exacerbate one. Populism and polarized politics make it unlikely that we’d be able to come up with a fiscal solution in a crisis. Therefore, Prince said, the next downturn may be a real mess, where neither monetary nor fiscal policies can do anything about it.

The evening concluded with a captivating fireside chat with Furman, Prince, and Donald Guloien, former president and CEO of Manulife. In addition to talking about global macroeconomic topics, the three also discussed the impact of technological advances, such as artificial intelligence and robo-advisors on the financial industry. Guloien, for one, stated his belief that this technology presents an opportunity to advance civilization, as well as help investment managers be more effective.

The consensus among the speakers at the Annual Investment Dinner was that the global economy is doing well now, but that this may change in the future as the central banks are contemplating tightening. The next downturn, they concurred, may not be easy to reverse, as monetary and fiscal policies may not prove effective.