Now that the Federal Reserve is on hold, this will end up
having major effects in the stock market. The Federal Reserve minutes released
last Wednesday indicate the Fed will stop increasing interest rates and stop
shrinking its balance sheet. The slowdown of business spending, and data shows
that manufacturing activities are at their slowest pace in the past 17 months.
The bad economic news used to cause speculation that the Federal Reserve would
stop raising interest rates, but now that this appears clear bad news is just
as bad for the stock market. The data also found a 1.2 percent unexpected drop
in consumer spending, which should have been high due to the holiday season. If
this negative data continues in the future, there could be increased fears of a
recession. The Fed watches how the trade war with China unfolds, which contributes
to why they are holding off on the rate hikes. The slowdown in manufacturing and
consumer spending will have a negative
effect on GDP and inflation, overall slowing down our economy. The government
shut down only made things worse for our economy, by not letting the government
sources release economic data on schedule but hopefully scheduled data releases
will return to normal after this shutdown is over.
3 comments:
One thing that I noted from the article and the summary was the fact that the slowing of the release of negative reports also contributed to the “drag” on the economy after the government shutdown. The financial economists were saying that they can’t find a pattern to the data they are receiving, reflecting what we learned about in class about the importance of having full-information. Hopefully as more time passes the government will be able to release data on time in order to help economists make better predictions especially with the looming trade war and fear of recession.
It definitely seems like the case that conerns of a recession is more "when" rather than "if," given this article and several others on this blog. While we are "due" for one during this time (given the nature of business cycles), the fragility from our lack of information due to the government shutdown seems particularly poignant. As Bridget mentioned above, this truly does highlight the need for full-information for forecasting, at the very least. If we have any chances of successfully navigating an on-coming recession, it will be due to the timely-received data for our economy's macroeconomic indicators.
I think the FED has made the correct decision to hold rates steady for the time being. We have seen some week economic data begin to come out in the us and from around the world. Also, the markets have not been happy the last several times the fed raised rates, so it makes sense in order to help stabilize the economy they would put a hold on the contractionary policy.
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