Mar 232018
 
Bill Longbrake

Bill Longbrake

Optimism abounds across the globe and world economies are finally benefiting from years of easy monetary policy. Momentum is incredibly powerful and is currently self-reinforcing. Practically all economies are growing above potential and slack has already disappeared or is disappearing rapidly. In the case of the U.S., there is no slack and the enormous fiscal stimulus embedded in the “Tax Cuts and Jobs Act,” disaster relief spending, and substantial increases in defense and discretionary spending caps will lift growth substantially above potential in both 2018 and 2019. When an economy has no slack and operates well above its potential, it risks overheating and that triggers upward pressures on prices and accelerates the buildup of imbalances in the economy. We are in the mature phase of the business cycle and the added stimulus will propel the economy higher in coming months. Best to enjoy the good times now because we know from history that strong economic momentum, when the economy is operating at or above full capacity, eventually leads to recession and correction of the imbalances that built up during the euphoric period of strong growth.

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