The Fed’s policy switch may be too late to save the economy

on Mar23
by | Comments Off on The Fed’s policy switch may be too late to save the economy |

To be sure, there are still few if any economists who think an actual recession is near.

Zandi, the Moody’s economist, said the current jobs market is strong enough that it suggests an economy that is “struggling” rather than one in recession.

Likewise, Joe Brusuelas, chief economist at RSM, figures it will be a “near-miss” on a recession, but said the Fed’s recent actions show it is “preparing for a change in framework.”

One of the central bank’s problems is that, with its funds rate now trading around 2.41 percent, it has little wiggle room in the face of another downturn. Brusuelas estimates the Fed needs about 650 basis points of room to cut rates during an economic pullback or recession and now has less than 250.

“So we’re going to be back in the world of unconventional policy,” he said. “This is real big stuff.”

That realization comes just a year after the economy grew around 3 percent and the White House is predicting around the same for 2019, an expectation that already looks like it won’t be met. The Atlanta Fed’s GDP tracker is suggesting just 0.4 percent growth in the first quarter, setting up math that will be hard to overcome the rest of the year.

Asked if he thought the Fed, through its own cut to GDP expectations for the full year to 2.1 percent from 2.3 percent, was indicating that growth already has peaked, Brusuelas said, “That’s exactly what the Fed is saying.”

“I don’t begrudge them for the conservative stance they are taking. They’re trying to thread the needle,” he added. “Mr. Powell is going to have to choose his own path. We’re all going to have to live with that.”

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