Expanding expansions

by | Mar 4, 2019

“The Earth is finite, and if the world economy and population is to keep expanding, space is the only way to go.”

– Jeff Bezos

In just a few months the US will experience the longest expansion in its history. Sometime late this summer if the numbers are right. Since the 1960’s expansions have lasted longer, and recessions occur less often, with shorter durations. The average expansion now lasts greater than seventy months  and recessions less than twelve. It appears that the way the Fed orchestrates monetary policy has gotten better with time. Sometimes it does take a  long time to figure things out. But this doesn’t mean  recessions are extinct. Supply shocks, asset bubbles, and policy missteps (monetary, legislative and fiscal), have not gone away. We will see another recession but for now the current expansion looks ready to become a record holder as the Fed has softened its tone. Steve Slifer of Numbernomics puts it this way.

“It is accurate to say that every expansion grinds to a halt because the Fed raised rates to the point where, eventually the economy goes over the edge. But it is also true that in each case the trigger for the Fed’s action was some factor that was pushing the inflation rate higher. Because the Fed’s job is to keep inflation rate from spiraling out of control, it must take away the punch bowl just as the party gets going. To accomplish that it raises interest rates to both cool off the economy and bring the inflation rate back into alignment with its 2.0% target. Thus, the Fed becomes the catalyst for every recession, but it is not the underlying cause.”

Surprises are a part of markets. We will have more. We’ll experience more recessions, but for now, barring any unforeseen events, the economy should continue to generate growth with low to moderate inflation for at least the first half of the year, giving us a new record holder for US expansion.

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