SHARE
Fed Stresses Global Weakness, Quietly Recognizes Slowing U.S. Economy
Last January we warned of a closing window for liftoff of the fed funds rate, asking the rhetorical question, “if not now, when?” in the face of an impending slowdown. Now, the Fed is in the awkward position of justifying no rate hike last week by blaming “global economic and financial developments,” while assuring the markets that the “U.S. economy … has been performing well.”
Meanwhile, the latest Federal Open Market Committee projections indicate grudging recognition of the falling trend growth central to our yo-yo years thesis, as they once again cut their longer-run estimates of real GDP growth. In four years it has fallen from 2.65% to just 2%, converging to the economy’s 2% stall speed determined by an earlier Fed paper.
ECRI’s latest analysis examines the historical relationship between Fed rate hike cycles and positive and negative deviations from economic trend growth, shedding light on how well-positioned the U.S. economy is for the rate hike cycle the Fed is desperate to begin.