Economics & Research Blog
GDP Not Negative, and Fed Acts
As we expected,
By Dr. Joe Webb
Published: April 30, 2008
As we expected, GDP was not as bad as the recession-mongers expected, but their dark cloud was that there was a big inventory buildup. That unsold inventory means that production will go down until that inventory is sold. What does that mean? Another slow, probably still positive, quarter is going up. This is the way slow periods play out.
The Fed, anxious to cause more inflation, it seems, cut by a quarter point, as long expected. Remember, a few weeks ago, it was certain that it would be a half point. Somewhere along the line, things became less dire.
The inflation of food and energy is in the papers, but the press is still missing the point. Increasing prices of goods are not as bad because people can adjust by sharing rides, driving less, switching to other goods, or changing behaviors, such as not eating out for dinner. The real problem with inflation is what it does to savings and investments intended for future purchases, such as for retirement, or for the purchase of a major good, like a car, two or three years from now.
Fed rate cuts are not helping us. We hope this is the last one and that they take a long vacation or start raising rates in a few months. Their actions will just prolong this slow period to multiple quarters. The U.S. has become a slow-growth European economy without the high unemployment, and will stay that way for some time.