US Is Not Prepared For The Coming Recession
Historically, the US economy suffers a recession every 5 to 8 years, so given that this current recovery (and many Americans have not recovered from the last recession) is more than 6 ys old, Americans face another downturn soon.
And with monetary policy in heavy-easing (QE) mode and fiscal policy hamstrung by the government’s massive debt burden, the US Fed’s tools to combat any downturn are limited.
As the US economy’s anemic expansion ages and clouds gather overseas, policy makers worry about recession. The concern is not that a downturn is imminent, but whether they will have firepower to fight back when one comes.
Former Fed Chairman Ben Bernanke is concerned too.
The Fed’s weapons to fight the next recession will be “more limited than usual, but they’re not Zero by any means,” he said Wednesday.
The Fed’s target rate for federal funds now stands at a record low of Zero to 0.25%. And while the central bank is expected to start raising rates sometime soon, many economists believe the rate to top out at 2%, and not until late Y 2016 or Y 2017.
On the fiscal side, federal government debt has soared to 74% of GDP from 39% in Y 2008. That leaves little room for higher spending and/or lower taxes.
Wednesday afternoon the minutes from the July FOMC meeting were published ahead of schedule causing volatile stock market action,
The early selling pressured the S&P 500 below its 200-Day MA at 2,078, but the benchmark index crawled back above that mark during afternoon action and charged to an intra-day high after the minutes from the July FOMC meeting crossed the wires about 20 mins ahead of the scheduled release time.
DJIA -162.61 at 17348.73, NAS 100 -40.29 at 5019.05, S&P 500 -17.31 at 2079.61
Overall, the mins appeared to be very Dovish with members agreeing that more information is needed before hiking rates. And, most members believed that conditions for policy firming had not yet been achieved, but they agreed that conditions were nearing that point.
The mins were followed by a spike in the Treasury market, sending the 10-yr note to its high (10-yr yield -8 bps to 2.12%) while the US Dollar (.DXY) Index (96.37, -0.67) fell 0.7%.
Stay tuned…
HeffX-LTN
Paul Ebeling
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