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Economist’s View: Fed Watch: Monetary Policy on Autopilot

by on May 2, 2011

Fed Watch: Monetary Policy on Autopilot

Tim Duy:

Monetary Policy on Autopilot, by Tim Duy: The first quarter GDP number was profoundly disappointing. I always look back to the benchmark of the mid-80’s to measure the pace of the recovery, paying close attention to real final sales:

A1

The pace of the current recovery pales by comparison. Indeed, even the meager 1.6% average final sales growth is inflated by the blowout 6.7% gain in the final quarter of last year. Excluding that quarter, the average is a miserable 0.9%. It was the that fourth quarter data that gave me hope the economy was actually turning a corner; that hope was so quickly dashed

People still expect that the economy’s natural state is cyclical, and expands and contracts like a rubber bank or bouncing ball. The reality of lost jobs with nothing on the horizon to replace them doesn’t sink in. The idea of the stimulus is it will create jobs because it creates demand. Little understanding that more demand will employ more robots, or the stimulus money goes immediately overseas for investment there. Only when we get past this illusion of rebound and recovery can we face the real problem of production, income distribition, and environment (and population).

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