With full employment, inflation near the 2% goal and no immediate threat of it rising; the Federal Reserve Vice Chair, Richard Clarida, says the US economy is in a good place. However, there are some pending risks on our economy. The economic growth slowdown that is occurring in Asia and Europe could negatively affect our economy and is resulting in a fragile global economy. The Fed is going to continue to be patient while looking at data reports and wants to do whatever it can to support the economy. Clarida also said that he will take signals from the financial markets into consideration when determining monetary policies but he will not be tied to them. Lastly, Clarida brushed off that the US has a flat yield curve saying that there are many factors that are pushing long-run rates down, despite this being a signal for a recession.
I thought that Clarida’s optimism for the US economy was refreshing; however, I am not sure how long the economy will stay in good standings. With Asia and Europe’s economies slowing, it will certainly have a negative effect for the US and I am not sure we are fully prepared for that. It will be interesting to see how this all plays out and when we will finally go into a much overdue recession.
Link: https://www.reuters.com/article/us-usa-fed-clarida/feds-clarida-says-us-economy-in-a-good-place-idUSKCN1QE2PQ
4 comments:
I agree with you as well, Caroline that although the report says the U.S. economy is in a good place, we know that that it could just be for this moment. Along with the slowing of Asia and Europe’s economies, our economy is also going through interesting times with our current Presidents decisions, especially concerning the wall. Clarida said that it was the role of policy is to keep the economy where it is now, but he also noted the current condition of other central banks in the world and how their rates are close to those when they were in “full crisis-fighting mode.” This shows that we will need to keep a close eye on other banks to see their potential effects on the us, while also monitoring our internal situations.
Caroline, I think this article is interesting and poses many great questions. When thinking about where the economy is headed I think there are people who think we are in a good place, and people who think we are headed south. In both scenarios, these groups of people have data to back up their opinion. Like you said, a flat yield curve can symbolize a recession, but Clarida seems to think otherwise. Finding a happy medium seems to be my opinion, lets continue to grow but not force the growth, make it feasible and attainable. The slowdown overseas will also be an issue for us, but we'll see how it goes.
I share your uncertainty for how long this good position may last for our economy. Especially with the looming threat of a no-deal Brexit, fears that we may not be able to fully sustain ourselves are valid. However, there is still the matter of our relatively low unemployment/ higher productivity without inflation coming off of last year. Given that there is still room in our economy for wage increases, the same cushion could possibly accomodate any future cost-push related inflation.
I agree that the economy is in good standing now, however due to the slowdown of the economies around the world, this leaves us in a fragile state. This global slowdown is pushing long-run rates down and slowly leaning towards a recession. The U.S China trade argument is very damaging to many industries that rely on trade, for if they can’t trade the production cost will go up and affect the overall prices in the economy.
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