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Goldman Asks: ‘Why Cut?’
It probably shouldn't surprise you to learn that Goldman was out Monday morning with something called "Why Cut?" from the desk of Jan Hatzius.
The bank was among the last to throw in the towel and adopt rate cuts as the base case headed into the July meeting and Goldman clung to the idea of four hikes in 2019 for longer than they probably should have last year as market conditions continued to deteriorate.
Considering how dramatic the dovish pivot from Jerome Powell and co. has been in 2019 an
The Fed has consistently overestimated the economy, and have missed their inflation targets. Low inflation poses a danger when you have slowing growth. When you get slow nominal growth (my preferred metric btw) debt burdens become onerous and the economy grinds to a halt or worse. Not mentioned much in the article is the slowing growth overseas and the increasing danger of slowdown coming out of slowing worldwide trade and fractured supply chains. I am no Trumpite; the administration’s approach is ham handed. But they are correct that the Fed needs to adjust policy- in particular the December rate hike was a gigantic error, combined with terrible FOMC communication particularly Mr. Powell. An ounce of prevention is worth a pound of cure- if the economy picks up steam again, the Fed can always go back to tightening again.
It is not so much the wealth effect (consumer spending driven by asset prices/wealth) it is the biz spend (cap ex, op ex, hiring/firing, wage increases) that have a larger effect as CEOs, execs, boards look to their stock price/wealth.
Stock prices at record highs while biz inv slows and the economy moves towards trend.
The Fed learned a lesson from 08. But we will still end up blowing big bubbles and instability which again will causes serious issues in the economy. Ultimately the only way out of this mess is via productivity which requires capital spending and education which is long tailed sadly.
Goldman not so much selling their own book as giving it away?