Can you explain why this muddle is interesting to you because we’re at a turning point in lots of different ways? The Federal Reserve had a year-long mission to curb aggregate demand; maybe that’s happening now that we’re going through a sharp turn with financial stress and in particular at small banks.
Will it show up somehow somewhere? The most interesting thing about the report I just gave was the date above: March 25th.
It’s our first reading on any activity, a really noisy one that said that comes after the banking strains, and we haven’t seen anything yet; we’re just waiting for that, So Vincent This is the problem that people have when they look at the actual data: it looks strong; it looks like a robust market; it looks like inflation is still running too high; there are not a lot of signs of cracks in the real economy.
What gives you confidence? What gives others the confidence to wait and it will come? Okay, so the late great Rudy Dornbush had a phrase: “Everything takes longer than you expect, and then when it happens, it’s really fast.”
This is what happens with the business cycle; the curves are sharp; the unemployment rate rises sharply after falling by just a tenth of a second or moves sideways after a longer period.
What gives me confidence that some bad things would happen to the economy is that we’ve had a significant Federal Reserve tightening and we have tightening in the banking system, particularly on the ground at small bank deposit runoffs.
That’s bad for credit availability. We have our trading partners slowing. The simplest reason to expect some slowing is that trees don’t grow to the sky. Output is above what we think is the efficient potential.
The unemployment rate suggests labour markets are very taut. Macro economies don’t last that long in this state. Something happens and it’s to the downside.
