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The Fed and the Phillips Curve

Deflation is the Order of the Day The Fed was established in December, 1913 after the Panic of 1907 (the latest in a series of financial panics dating back to the middle of the 19th century) put the economy into a severe recession via bank runs and subsequent bank failures.  The Fed’s original purpose was to provide the nation with a safer, more flexible, and more stable monetary and financial …Read More

Economic Growth: Its Importance and the Potential Impact of its Demise

Conceptually, economic growth is a function of two factors: the growth of jobs, and the productivity of those employed.  In a world where the labor force of industrialized nations is stagnating, or, worse, shrinking, one might reasonably ask: “Why is economic growth, as measured by the increase in real GDP, so important to the economy?”  A good argument can be made that real GDP per capita would be a better …Read More

At Recession’s Onset, There is No Bell, Bugle, or National Anthem

From my reading of the business media, there are few business economists who believe, like I do, that the probability of a recession in the next 12 months is greater than 50%.  A recession is generally viewed as two consecutive quarters of negative real GDP growth. Looking forward, a recession isn’t inevitable, as there have been ‘soft landings’ in the post-World War II era.  Nevertheless, from my lens, there doesn’t …Read More

What ‘lower for longer’ means to yield-hungry investors

You’ve heard the expression, “We live in interesting times.” Substitute the words “uncertain,” “experimental,” or simply “scary” for “interesting,” and you will capture the feeling of many investors, especially those who have already retired or are approaching it. As I write, the media tells me that, by almost any standard measure, equity valuations are too high. For example, trailing PE ratios are 20x, 5 points above the historical mean. To …Read More

The Fed puts rates on ice

After raising interest rates in December for the first time since the financial crisis and Great Recession, the Federal Reserve has gone into a January freeze. The central bank on Wednesday announced no change in interest rates, meaning the target for the Fed’s benchmark federal funds rate will remain between 0.25% and 0.50%, the range set last month. For consumers, the outcome of this week’s meeting means more of the …Read More

For Clients & Friends

Dear clients and friends, The long overdue market correction has finally arrived. And due to automated trading, volatility is extreme. Furthermore, it is likely that the volatility will last for a while. Here are the economic issues the market is fretting over: Weakness in China – their currency devaluation is a clear sign that Chinese officials are worried about economic growth. That growth, by the way, is likely substantially lower …Read More