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The Pandemic Caused Significant Economic Impacts; Not All Inflation Is Related

Over the last several blogs, we have opined that the pandemic hasn’t changed the economy’s potential growth path. The chart shows GDP growth rates beginning in the mid-1990s (with the Atlanta Fed’s +1.3% Q3/2021 forecast). The horizontal line shows a 2% growth level. Note that the left-hand side of the chart shows much higher growth than the right-hand side. In the 1990s, growth was in the 4%-5% range, and in the 3%-4% range in …Read More

The Economy Has ‘Recovered’ – Anemic Growth To Follow

The September jobs report was filled with cross-currents, some showing possible economic weakness, some showing strength. This makes the Fed’s job exceedingly difficult. Is the economy strengthening or weakening? What’s the correct monetary policy prescription? “Taper” asset purchases? Raise interest rates? Since September payrolls were so ambiguous, perhaps October’s (which will be available to the Fed prior to its November meeting) will shed brighter light on the economic trends. Just to review the latest employment data, …Read More

Fed Ignoring Market Rate Spikes – Basing Policy on “Actual Data”

The median of the Fed dot-plot (a summary of the individual member views on where Fed Funds will be over the next three years) indicated no changes in the Federal Funds Rate until 2024.  But, because the Fed upgraded its economic (GDP) forecast to 6.5% from 4.2% for 2021, and a few more FOMC (Federal Open Market Committee) members moved their “next rate hike” forecast into 2023, the market is …Read More

Dysfunctional Credit Markets – Still Waiting on the Fed

As the week ended, U.S. credit markets appeared confused, if not outright dysfunctional.  The 10-Year Treasury yield began February at 1.09% and reached an interim peak of 1.54% on February 25.  Then it retreated to 1.42% as markets thought the rise had simply been overdone.  But Fed Chair Powell’s refusal to assure financial markets regarding the Fed’s intentions at the Wall Street Journal’s Jobs Summit (as detailed in last week’s …Read More

The Economy Slows; The Real “New Normal”

The virus’ resurgence has caused more business disruptions, raising the specter of a renewed economic slowdown.  Spending and income numbers have mainly been negative in Q4, and the much hoped for stimulus relief package is now stuck on the president’s desk. The Economy “Drop in Spending, Higher Claims Cloud Outlook for Growth,” WSJ, 12/24/20, A1. Restaurants: -3.7% November (M/M); -0.6% October Hotels/Motels: -8.7% November (M/M); -4.4% October Movie Theaters: -17.2% …Read More

Policy Rx for Recession Aggravates Income Inequality

T’was the week before Christmas and all through the house, not a creature was spending, not even your spouse; the stockings were hung by the chimney with flairs, in hopes that the Congress would supplement CARES. And so, it appears that the economy continues to deteriorate as the Congress attempts to put together another stimulus without provisions for certain favored constituents of either party – much easier said than done.  …Read More