The Economy is Not Alright

Just an observation, in one part obvious, the other more in minutia:

Anecdotally, the US economy increasingly relies on the press releases of the US Fed and similarly powerful institutions. While these organizations significantly affect the economic performance of markets, companies and financial organizations scrutinize, to the point of obsession, the small hints and clues in official statements made by the Fed. Words as innocuous as ‘patient‘ in Fed press releases become increasingly analyzed for clues towards where the Fed will go with monetary policy. This pattern has become so severe that even Fed officials have noted the pattern of firm scrutiny.

From the NY Fed's blog post, 'The Economics of the Fed’s Press Conference', Source: http://libertystreeteconomics.newyorkfed.org/2013/11/a-way-with-words-the-economics-of-the-feds-press-conference.html

Graph showing stock/treasury bond markets react to a Federal Open Market Committee statement, Source: http://libertystreeteconomics.newyorkfed.org/2013/11/a-way-with-words-the-economics-of-the-feds-press-conference.html

Overall, this pattern strikes a strong resemblance to what Tyler Cowen alluded to in his article, ‘Don’t Be So Sure the Economy Will Return to Normal.’ While people hope for a ‘true’ recovery, Cowen theorizes that no recovery may ever actually materialize. The economy before us today is the economy as we know it, and firms and politicians alike are in a state of denial. In a world where the marginal returns to technology are diminishing, populations are shrinking, people are aging, and where financial uncertainty is prevalent beyond the horizon, firms have opted to rely on government action more than market coordination. As Cowen noted, this behavior of avoidance will result in much more damage to the economy in the long run. Firms and politicians must realize the new nature of the economy if true gains are to be made in the economy, preferably sooner than later.

Just an observation.

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About Elias Garcia

18 y.o. Male Missouri, USA I like reading history, philosophy, literature, and other things that often make people snore.
This entry was posted in Economics, Federal Reserve, Finance, Monetary Policy and tagged , , , . Bookmark the permalink.

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