What Yesterday's Weak GDP Report Really Means
March GDP was reported as 0.2% yesterday. Weak was expected, but not this weak. The Fed chimed in immediately to assure us that it's just a passing phase. And without a moment's pause, they added that their planned rate hike - whenever that might occur - won't be affected in the least by this anemic number.
So what's it all mean?
First of all, we might ask ourselves what else did we think the Fed might say? That the economy's headed south? Of course not. Remember that the Fed sang a similar consistently upbeat song months after our last recession began in 2007. What's that you say? Recessions usually aren't confirmed for several months after they begin. True, but we're not talking about the Fed announcing a recession. We're talking about their denying that the economy was even slowing in any way. And once it became clear that it was, the tune changed to how mild a recession it would be, shortly to turn around on a dime and head back to the steady growth we all expect from the mighty American economic machine.
The point is that none of their pronouncements held water before, during, or after the Great Recession. They simply pulled out their trumpets and blared the "All Clear" signal in the face of all evidence. Thank goodness they weren't in charge of air raid warnings during the London Blitzkrieg.
Okay, enough about the Fed. Is the economy about to turn over?
Not so fast. As far as we can tell at the moment, the economy's been slowing for a while, and could very well eventually sink into recession. But that's unlikely to happen right away. There's still more "liquidity pumping" the Fed could produce, let's say, in the form of another round of QE, or perhaps more advanced moves as we see with the Bank of Japan, which buys anything not nailed into the walls, including corporate bonds and stocks. They're not likely to sit back and let the economy sink as long as they can do something - anything - about it. That's just the way they operate these days.
All we're saying here is don't buy the line about how the Fed "expects overall activity to rebound and left an increase in short-term interest rates on the table for the months ahead." As opposed to our dear Fed officials and many of Wall Street's eminent economists, we prefer to remain circumspect and keep our risks under a magnifying glass with a view to protect ourselves from either a weakening economy or a tinkering central bank.
So what's it all mean?
First of all, we might ask ourselves what else did we think the Fed might say? That the economy's headed south? Of course not. Remember that the Fed sang a similar consistently upbeat song months after our last recession began in 2007. What's that you say? Recessions usually aren't confirmed for several months after they begin. True, but we're not talking about the Fed announcing a recession. We're talking about their denying that the economy was even slowing in any way. And once it became clear that it was, the tune changed to how mild a recession it would be, shortly to turn around on a dime and head back to the steady growth we all expect from the mighty American economic machine.
The point is that none of their pronouncements held water before, during, or after the Great Recession. They simply pulled out their trumpets and blared the "All Clear" signal in the face of all evidence. Thank goodness they weren't in charge of air raid warnings during the London Blitzkrieg.
Okay, enough about the Fed. Is the economy about to turn over?
Not so fast. As far as we can tell at the moment, the economy's been slowing for a while, and could very well eventually sink into recession. But that's unlikely to happen right away. There's still more "liquidity pumping" the Fed could produce, let's say, in the form of another round of QE, or perhaps more advanced moves as we see with the Bank of Japan, which buys anything not nailed into the walls, including corporate bonds and stocks. They're not likely to sit back and let the economy sink as long as they can do something - anything - about it. That's just the way they operate these days.
All we're saying here is don't buy the line about how the Fed "expects overall activity to rebound and left an increase in short-term interest rates on the table for the months ahead." As opposed to our dear Fed officials and many of Wall Street's eminent economists, we prefer to remain circumspect and keep our risks under a magnifying glass with a view to protect ourselves from either a weakening economy or a tinkering central bank.
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