FXStreet (Delhi) – Philip Marey, Senior US Strategist at Rabobank, notes that the US economy came out of the Great Recession in June 2009 and has seen an expansion that has lasted for 75 months (as of 2015Q3) and with the average post WWII expansion lasting 58.4 months it could be argued that the next recession is long overdue.
Key Quotes
“The large and domestically-oriented US economy should be strong enough to deal with external demand shocks, such as the slowdown in the Chinese and other emerging economies. Meanwhile, oil shocks may have a smaller impact now that the domestic shale oil industry has made the US less dependent on oil imports. In contrast, domestic shocks may pose a serious threat to the current expansion.”
“First, fiscal policy remains characterized by threats of government shutdowns and defaults. While government shutdowns tend to be a modest drag on GDP growth, a stalemate on the debt ceiling might lead to a default that could spark a US sovereign debt crisis. Meanwhile, the November 2016 elections could lead to Republican control of both the White House and the Congress. If this would lead to aggressive cuts in government spending, the multiplier effects could derail the recovery.”
“Second, monetary policy mistakes are easy to make. If the Fed hikes too early or at a pace that is too fast, the recovery could come to an end. An additional risk comes from the normalization of the Fed’s balance sheet that has skyrocketed in recent years. There is also a possibility that in the process the Fed pops a bubble that was caused by its own policies.”
“While the next US recession may still be years away, there is a substantial risk that it will happen earlier and in that case policy options may be limited.”
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