The Federal Reserve has a dual mandate: stable inflation and low unemployment. Well, core inflation is currently at 1.2% (core PCE growth is at only 0.95%) and unemployment (thanks to Covid-19) is at 11.1%. Not quite on target.
The Taylor Rule model using an aggressive specification suggests that The Fed lower their target rate to -8.58%.
Of course, Congressional spending is out of control with mandatory spending (entitlement programs, such as Social Security, Medicare, and required interest spending on the federal debt) since the days of George HW Bush and Bill Clinton. And especially post financial crisis.
Of course, mandatory spending on Medicare is soaring out of control.
Defense outlays are projected to grow with non-defense outlays declining,
Of course, the TRUE dual mandate of The Federal Reserve is propping up the S&P 500 index and NASDAQ.
Good luck to everyone trying to cope with out of control Congressional spending and Fed money printing.
The question is … will Congress and President Trump/Biden reign in their prodigious spending after Covid-19 passes?
Here is my answer. Where are the Budget Hawks when we need them??
“In the field of monetary and credit policy, precautionary action to prevent inflationary excesses is bound to have some onerous effects— if it did not, it would be ineffective and futile. Those who have the task of making such policy don’t expect you to applaud. The Federal Reserve, as one writer put it after the recent increase in the discount rate, is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up.”
William McChesney Martin, Speech to Investment Bankers Association of New York, October 1955
I want to thank Rick Sharga for remembering that I was one of the few that predicted what is happening today with interest and mortgage rates while most others predicted mortgage rates would rise above 8%.
The researchers created an index comprised of four factors and then used the Mahalanobis distance — a measure initially used to analyze human skulls — to determine how current market conditions compare to prior recessions.
Using this principle, the researchers analyzed four market factors — industrial production, nonfarm payrolls, stock market return and the slope of the yield curve — on a monthly basis. They then measured how the current relationship between the four metrics compares to historical readings.
This recession measure is at odds with other recession probability forecasts which forecast a recession in the next twelve months at only 28% or less.
Recession is defined as two consecutive quarters of negative GDP growth. Well, it is possible that the coronavirus will damage China GDP and maybe US GDP, but the MIT/State Street study is based on Industrial Production, Non-farm payrolls, the stock market and the yield curve slope. Only the yield curve slope (orange line) and Industrial Production (yellow dashed line) are showing recession-like trends.
Unless of course, MIT/State Street are saying there is a stock market bubble that will burst.