Category Archives: recession

Implications of a “No Recovery Package” Outcome

From Deutsche Bank on Sunday:

In the US, fiscal uncertainty is a major issue. As outlined above, we now assume that significant further support will not be forthcoming until after the election. The resulting drop in income support for households is already beginning to depress activity and we see GDP growth slowing to near zero in Q4 as consumer spending slides. Growth will pick up in Q1 with some post-election fiscal support.

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Deviations vs. Shortfalls

The Fed’s new framework, as described by Chairman Powell, mentions “shortfalls” (particularly in employment), instead of deviations of the natural rate. The output analog of this shift is moving from the deviation of output from potential (i.e., output gap) to an output slack measure. If we interpret this as requiring a focus on a Friedman-esque plucking model of maximal output, rather than potential GDP as described in most textbooks, what does this mean for where we are right now? I’d say for the short run, we are still in for a world of pain, economically speaking…

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