Friday, February 10, 2012

Too much good news?

The Fed has promised two seemingly inconsistent things.

1. to keep interest rates "extraordinarily low" well into 2014

2. to keep inflation at 2%

As noted, these are really only compatible if the economic recovery remains sluggish.

But, growth accelerated last quarter (and there is talk that number will be revised upward), and early indicators show that growth may be strong this quarter as well. Unemployment is falling, initial jobless claims are falling, Greece continues to be willing to eat Germany's sandwich.

If these trends continue, it will be a case of too much good news for The Bernank, and the Fed will face a tough decision about which promise to break.

So, come on American economy! Let's kick some butt and make the Fed rue their super-bearish forecast.


Norman said...

In their defense, the Fed has a lot of experience pursuing conflicting/contradictory objectives.

Dirty Davey said...

And the evidence that the economic recovery will be anything other than sluggish at best?

Anonymous said...

This is a genius political move. If Obama stays in office, he can continue to kill prosperity and interest rates will stay low, inflation stays at 2%, and he'll go down as a President that improved the economy from year 1 to year 8.

If he is voted out, a Republican will improve the economy so much that interest rates will have to go up and/or inflation will spike. Either way, Republicans are being setup to "screw the economy" no matter what happens. Genius.

SheetWise said...

"The Fed has promised two seemingly inconsistent things."

The Fed has promised two mutually impossible things in the current market, but I suspect they intend to use their own numbers.

Tom said...

"Greece ... to eat Germany's sandwich"? It's a strange metaphor for a country swirling in a financial toilet and a rescuer contemplating the need to drink the entire vortex.