Marc Chandler
On both counts, policy developments do not appear to be waiting for the NBER or two quarters of negative GDP. In recent days, the U.S. president and senior Democrats appear to be favoring a modest fiscal stimulus of, say, $50 billion to $100 billion. In addition, the 4.25% fed funds rate -- which is likely to fall to 3.75% at the end of the month -- contrasts to a 4.3% year-over-year rise in headline consumer prices in November. The December figures will be released at the end of the week, and the consensus calls for a 4.1% pace (and subjectively the risks look to be on the upside).
"Stagflation" is also a slippery word that seems to defy clear definitions. The generic meaning is sluggish growth coupled with price pressures, something that classical and neoclassical economists did not think possible. Yet the common precedent cited is the 1970s, when inflation
was in the double digits and unemployment was rising from about 6% on its way to almost 11% by the end of 1982.
Although some pundits are referring to current conditions as stagflation, this seems to exaggerate inflation and unemployment or the slowing of the U.S. economy. Moreover, it seems not to appreciate that the business cycle and the price cycle are not always (or even usually, arguably) in sync. As is well appreciated, prices tend to be sticky.
So is the U.S. in a recession or headed for a recession? Is it experiencing stagflation? Like beauty, the answer lies in the eyes of the beholder.
Why Cramer's Wrong About a Recession |
at the end of the month, with the real fed funds rate staying below zero, he was clear that a recession was not the Fed's baseline forecast.
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