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The celebration of the US economy’s second-quarter growth “rebound” to 4 percent will be short. The headline number’s strength exaggerates the growth pace. It would be dangerous if this number speeds up Federal Reserve tightening.
The average growth rate of the first half of 2014 was 0.95 percent, quite a lot weaker than the 3 percent pace expected early in the year by the Fed and most analysts and is actually pretty close to stall speed.
The recent drop in US unemployment to 6.1 percent has raised hopes for a stronger economy, even though analysis of the major features of the US economy since 2008—regarding growth, employment, wages, and investmen—shows that all are dismal, notwithstanding the recent modest pickup in monthly employment increases. America needs a stronger recovery.
Simon Johnson says, “For more than a century, we have recognised that the availability of central bank liquidity support creates the potential for serious moral hazard.” Indeed it does – in fact, this has been understood for well over two centuries. But as the numerous recent crises have shown, we still do not know how to cope with it.
Fed Chairwoman Janet Yellen has suggested the possibility of "even higher capital requirements" for banks. This calls to mind something about pots and kettles after taking a look at the Fed's risky balance sheet.
It would be shocking if the Fed were to change monetary policy in any notable way at the FOMC meeting that concludes today. One reason is simply that Fed Chair Yellen does not have a press conference after this meeting.
The February 11 testimony of Janet Yellen, the new Chairman of the Federal Reserve Board, to the House Financial Services Committee, described the Fed as “transparent and accountable.” However dubious a description this may be, four transparent intentions of the Fed did come through.
Quantitative easing and fiscal stimulus are becoming less effective. The reason is the same as the reason that antibiotics, overused in an attempt to cure infections including common colds, are becoming less and less effective with more intensive use: endogeneity.