Economists universally agree that if you give the consumer money, they will spend it. I can recall the government response during the GW Bush Presidency to a period of economic weakness was a $65 billion one-time check sent to the U.S. consumer. Yes, those feel like simpler times. The economists suggested that $65 billion spent quickly, with the money multiplier effect, would stimulate the economy by 3-4x that amount. Recently, we witnessed trillions pumped into consumer bank accounts during a pandemic and a Fed that hardly knows what is the proper neutral interest rate, not stimulative or restrictive? We sit here today with an economy that is doing splendid despite what Chair Powell believes is very restrictive interest rate policy. How can 5% fed funds be restrictive and have no effect on the economy in contraction terms as we witness strong GDP growth, low unemployment and inflation receding? It cannot and I believe there is a mitigating factor at work. The Wealth Effect.
The Wealth Effect
The Wealth Effect
The Wealth Effect
Economists universally agree that if you give the consumer money, they will spend it. I can recall the government response during the GW Bush Presidency to a period of economic weakness was a $65 billion one-time check sent to the U.S. consumer. Yes, those feel like simpler times. The economists suggested that $65 billion spent quickly, with the money multiplier effect, would stimulate the economy by 3-4x that amount. Recently, we witnessed trillions pumped into consumer bank accounts during a pandemic and a Fed that hardly knows what is the proper neutral interest rate, not stimulative or restrictive? We sit here today with an economy that is doing splendid despite what Chair Powell believes is very restrictive interest rate policy. How can 5% fed funds be restrictive and have no effect on the economy in contraction terms as we witness strong GDP growth, low unemployment and inflation receding? It cannot and I believe there is a mitigating factor at work. The Wealth Effect.