Could we be experiencing a revival of the US policy approach seen in the early 1980s?
Because there are currently no indications of serious fiscal consolidation, financial markets are leaning heavily on the Federal Reserve to fight off sudden price shocks. I covered the finer details of this situation in my FT column published a week ago.
If this trend keeps up for an extended period, our broad policy environment will bear a striking resemblance to that of the early 1980s. That era was defined by a severe lack of fiscal restraint alongside an overreliance on monetary tightening. Such a dynamic generally acts as a barrier to balanced economic growth, as it tends to strengthen the US dollar while squeezing sectors that are highly sensitive to interest rates.
Despite this historical comparison, there is a reassuring silver lining for us today. The positive productivity shock we are currently experiencing is anticipated to yield results much faster than the one from that past period, which did not actually take full effect until the 1990s.
#economy #markets #growth #federalreserve #monetarypolicy #fiscalpolicy #budget
Because there are currently no indications of serious fiscal consolidation, financial markets are leaning heavily on the Federal Reserve to fight off sudden price shocks. I covered the finer details of this situation in my FT column published a week ago.
If this trend keeps up for an extended period, our broad policy environment will bear a striking resemblance to that of the early 1980s. That era was defined by a severe lack of fiscal restraint alongside an overreliance on monetary tightening. Such a dynamic generally acts as a barrier to balanced economic growth, as it tends to strengthen the US dollar while squeezing sectors that are highly sensitive to interest rates.
Despite this historical comparison, there is a reassuring silver lining for us today. The positive productivity shock we are currently experiencing is anticipated to yield results much faster than the one from that past period, which did not actually take full effect until the 1990s.
#economy #markets #growth #federalreserve #monetarypolicy #fiscalpolicy #budget