What the Fed wants, the Fed gets!

With the GDP revision today:

Broadly, economists expect the economy will strengthen later in the year, but it remains to be seen if growth can breakout of its about 2% pattern recorded for most of the economic expansion that began in mid-2009. Even a rebound to a 3% growth rate in the second quarter would still result in a sluggish expansion for the first half of the year.

The concept of “strengthen” is vague in the context. And there´s nothing to indicate that “growth will breakout of the close to 2% recorded pattern”.

The charts give a good visual.

In the first, I blocked out the (extended) Great Recession period. Note how nominal and real growth have come back at reduced speeds, which I named “Depressed” Moderation to contrast with the “Great” Moderation that took place from 1987 to 2007.

What the Fed wants_1

In the levels chart below, you can see how the economy has been “downgraded” to the “Depressed” Moderation. The important thing to note is that that´s exactly where the Fed wants it to be. If that´s true, there´s no chance the economy will brakeout of the “recorded pattern”.

What the Fed wants_2

Maybe that´s optimistic, because it appears the Fed has set its sights lower:

Federal Reserve officials forecast the economy to grow between 1.8% to 2.0% all this year, according to projections released earlier this month. That would represent a slowdown from the 2014 rate.

Note: The Fed knows what it wants!

One thought on “What the Fed wants, the Fed gets!

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