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From 1996 through 2000 we had 5 GDP readings over 6% including 2 over 7%. At least the last couple years was late in the cycle, and during the entire time the Fed was raising rates.
I more or less knew someone would throw that out there. I'll give you a couple of hours to think about why the two contexts are significantly different.
I more or less knew someone would throw that out there. I'll give you a couple of hours to think about why the two contexts are significantly different.
The example I gave strictly matched your criteria. If you feel there is something different about the contexts of the two time periods, I'd be more than happy to hear them.
Now, those last two readings are nice ones, but not 5-6%, and not anything that wasn't seen before the tax cuts were passed. For example, in Q2 & Q3 2014 we had GDP growth of 5.1% and 4.9%.
It's 5.4 percent year over year in nominal terms and has been trending higher since 2016. It's roughly the same as during the fiscal stimulus after the recession. Quarterly nominal gdp growth peaked in the second quarter and is now trending down.
Neutral rate for the Fed funds rate is based on the nominal growth rate and the long bond yield. Both are temporarily distorted by government policies. The range should be around 3.5 to 4.5 percent
The example I gave strictly matched your criteria. If you feel there is something different about the contexts of the two time periods, I'd be more than happy to hear them.
Now, why is it you don't want to tell me what the differences are? Is it because there really *are* no differences and you're trying to play games with a theory you don't really have?
Now, why is it you don't want to tell me what the differences are? Is it because there really *are* no differences and you're trying to play games with a theory you don't really have?
I was pitching/meeting with an investors at 10 AM local, you'll have to forgive me.
'90s and '00s.
1. During the late '90s the Fed fell behind an overheating economy
2. By May. - Nov. 2000 the Fed. managed the Effective Fed. Funds Rate to right at 6.5% (IIRC it was over 7 very briefly). During a span of about 10 weeks the fed. bumped EFFR ~2.5% - proving they were late to the party.
3. The result was a longish U shaped recession (really 10 underperforming quarters from later 2000 - early 2003) .
4. Part of my overall point is if the Fed. had been on its game the very high GDP numbers you mentioned - especially in 1999 and 2000 would been, who knows, 1/3 or 1/2 what they were.
Now, years out from a wicked recession.
1. Over recent quarters The Fed. has managed EFFR from less than 0.5% to about 2.19% or so in about 2 years. Instead of being behind the inflation curve Ms. Yellen/Mr. Powell and friends have been ahead of it.
2. Real GDP growth was 3.5% last quarter. A key measure of prices indicates 1.6% inflation over that same quarter - a decrease over the previous quarter. That means there is a very real chance further Fed. tightening may be blunted or forestalled.
3. It's a fairly narrow path but the Fed. may well have managed the economy just well enough that the next several quarters show 3%-4% real growth.
I'll leave you to figure out some nuance here. But my point is dual.
1). The GDP numbers you mentioned were high in great part due to poor Fed. decisions. The more muted but still great more recent GDP numbers are lower than they would have been without recent Fed. tightening.
2). The 1990/2000 Fed. had to drive recession in order to cool a superheated economy. The current Fed. has avoided the same so far and may have set the table for another couple or three years of strong and sustainable real GDP growth.
An interesting data point. Roughly 8 years into recovery from a withering recession, assuming 2018-IV isn't a bust, we will see three consecutive years of increasing real GDP growth and there is fair chance '18 real GDP growth will be the best since the bust.
From 1996 through 2000 we had 5 GDP readings over 6% including 2 over 7%. At least the last couple years was late in the cycle, and during the entire time the Fed was raising rates.
The telecom industry was spending about 3 percent of GDP to expand capacity during those years in response to a federal ruling to allow independent phone companies access to the regional bell companies' networks. The boom started in 1995. The Fed was lowering interest rates from 1995 to 1998. They only started raising them after the stock market entered a manic blowoff phase in 1999. At the same time, they were pumping liquidity into the system after the LTCM crisis in October 1998 and into the Y2K hype. There was an agreement with Japan and Europe to push down long-term treasury yields while the Fed was lowering the short-term interest rates. It's referred to as the Reverse Plaza Accord. The LTCM crisis blew up soon after the international coordination on interest rates ended.
From what I understand a good portion of that growth is attributed to the repairs for the natural disasters.
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I was pitching/meeting with an investors at 10 AM local, you'll have to forgive me.
'90s and '00s.
1. During the late '90s the Fed fell behind an overheating economy
2. By May. - Nov. 2000 the Fed. managed the Effective Fed. Funds Rate to right at 6.5% (IIRC it was over 7 very briefly). During a span of about 10 weeks the fed. bumped EFFR ~2.5% - proving they were late to the party.
3. The result was a longish U shaped recession (really 10 underperforming quarters from later 2000 - early 2003) .
4. Part of my overall point is if the Fed. had been on its game the very high GDP numbers you mentioned - especially in 1999 and 2000 would been, who knows, 1/3 or 1/2 what they were.
Now, years out from a wicked recession.
1. Over recent quarters The Fed. has managed EFFR from less than 0.5% to about 2.19% or so in about 2 years. Instead of being behind the inflation curve Ms. Yellen/Mr. Powell and friends have been ahead of it.
2. Real GDP growth was 3.5% last quarter. A key measure of prices indicates 1.6% inflation over that same quarter - a decrease over the previous quarter. That means there is a very real chance further Fed. tightening may be blunted or forestalled.
3. It's a fairly narrow path but the Fed. may well have managed the economy just well enough that the next several quarters show 3%-4% real growth.
I'll leave you to figure out some nuance here. But my point is dual.
1). The GDP numbers you mentioned were high in great part due to poor Fed. decisions. The more muted but still great more recent GDP numbers are lower than they would have been without recent Fed. tightening.
2). The 1990/2000 Fed. had to drive recession in order to cool a superheated economy. The current Fed. has avoided the same so far and may have set the table for another couple or three years of strong and sustainable real GDP growth.
An interesting data point. Roughly 8 years into recovery from a withering recession, assuming 2018-IV isn't a bust, we will see three consecutive years of increasing real GDP growth and there is fair chance '18 real GDP growth will be the best since the bust.
I don't agree that in the mid-late 90's the Fed fell behind. Here's the history of the Federal Funds Rate: https://fred.stlouisfed.org/series/FEDFUNDS
After the 1990 recession ended, the Fed began aggressively raising rates in 1994, with a lag after the recession ended (which is typical of their actions). They then basically flat-lined the rate at just over 5% for 4 years. There was a brief lowering in 1998 in response to the Asian currency crisis. Then in 1999 and 2000 they started raising it aggressively then.
Especially given that the lowest FFR after the 1990 recession was around 3% - which would be considered very high nowadays - I would say the Fed was *more* restrictive then than they have been in the past 10 years. And as a result of that, if anything, they were *restricting* growth more then than they are now.
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