Within the month the economy will have officially been in expansion for 10 years. The last time the economy hit the 10 year mark was in march 2001 and a rescission followed shortly after. The unemployment rate back then was very similar to where it is currently.
However, Currently the Fed has been under a lot of pressure. With the Fed rates hikes on pause if a recession does come it will not be able to combat it how it normally would. Typically the Fed drops rates by about 3% during a recession, with rates below 3% they will not be able to do that. Also, with the president heavily criticizing the Fed and markets dropping when rates are raised the Fed will have a hard time raising rates further.
The economy is doing well right now. We have had decent growth and Q1 looks to be better than expected. Inflation has also remained under control and unemployment has remained low. Furthermore, economic data from around the world appears to be improving. It appears the economy is in no pressing danger. however if something does happen the Fed may have trouble reacting to it.
https://www.cnbc.com/2019/04/18/fed-is-in-worse-shape-than-economy-as-economic-expansion-hits-a-decade.html
3 comments:
PAST PERFORMANCE DOES NOT REFLEX FUTURE PERFORMANCE. This bull run economy is golden. Just because business cycles have historically lasted seven to ten years does not mean they will always follow suit. The Fed needs to give into the dark side and listen to Trump. Lower interest rates and stoke the flames of this growing economy. Feed the bull and the markets will go to the moon. I am more worried about my SPY calls than the long term health of the economy and I would really appreciate it if the Fed would stop being a bunch of cowards. Unemployment is good, inflation is in control, we are just missing one piece of a great economy people, lower rates!
Past performance does not reflect future performance is correct, but cycles end at some point. While the economy is relatively strong right now the fed should stick to what they believe is correct for the time period. Lowering rates at the end of the cycle is not something the fed should do. Stimulating a strong economy will most likely cause high inflation and make the following recession worse.
If the Fed has no power to do anything to help with a recession then what is there to do? Wouldn't there need to be fiscal policies implemented in order to pump money into the economy to slow down the recession? With a brand new tax reform just enacted I doubt there could be a quick turn around in fiscal policy. The government is already running at a deficit as well so there isn't extra money lying around. Once a recession occurs in the United States the rest of the world soon follows after so it is also unlikely a foreign nation would or even could bail the U.S out. The only thing to do is for the FED to keep raising rates while undergoing scrutiny and keeping the long term success of the U.S. as its goal.
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