Is the Fed Responsible for Providing Unbiased Economic Data?
At the meeting held by the Federal Reserve in March, no word was said about lowering excessive government expenditure, slowing the money supply increase, or increasing interest rates.
The Federal Reserve's own economists saw what many other experts have seen for months, but for different reasons, as revealed in the minutes of their March meeting. The experts predict a modest recession for the United States by the end of the year. The latest bank collapses, they believe, portend more hardship and uncertainty. Surprisingly, there is no discussion of slowing the money supply increase or raising interest rates to rein in the federal government's wasteful spending.
A thorough investigation would require focusing on the roles played by the Biden administration and the Federal Reserve. Rather than taking the heat for its own, if reasonable, attempts to counteract foolish initiatives pushed by the previous two presidents and Congress, maybe the Fed would be better equipped to accomplish its tough task if it instead blamed failed banks.
“For some time, the forecast for the U.S. economy prepared by the staff had featured subdued real GDP growth for this year and some softening in the labor market. Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years.”
The forecast in question is not particularly unexpected. Before the Federal Reserve recognized an impending recession, other prognosticators had already made a similar prediction with a more comprehensive justification. A survey conducted by the Wall Street Journal in January, comprising 79 economists, had forecasted a negative Gross Domestic Product (GDP) growth in the second quarter of 2023, followed by nearly stagnant growth in the third quarter. According to a survey conducted by the Federal Reserve Bank of Philadelphia in February, 37 forecasters expressed a notable probability of experiencing negative real GDP growth in the latter part of this year.
According to a survey conducted in April, the panel has revised the projected commencement of the recession to the third quarter. In November of the previous year, economists from Wells Fargo made a prediction regarding the third and fourth quarters of the current year, wherein they anticipated negative GDP growth. This forecast of a recession has remained unchanged.
Conversely, the International Monetary Fund (IMF) stated in January that there was a possibility of the United States failing to meet a recession in 2023-2024. However, in the event of a deceleration, it would be moderate. In April, the International Monetary Fund (IMF) revised its outlook to a more negative stance. However, it essentially upheld its initial projection.
The pessimistic perspectives were primarily instigated by the Federal Reserve's measures to decelerate the economy in response to extravagant government expenditures, which encompassed ongoing hikes in interest rates, curtailment of bank credit or money supply, and instability in banks arising from the impact of elevated interest rates on bank-held assets. Additionally, the Russia-Ukraine conflict caused disturbances in energy, food, and other markets. The economists at the Federal Reserve directed their attention toward the recent cessation of two prominent financial institutions and the potential for additional disruptions in the banking sector.
To gain a more comprehensive understanding of the situation, it is advisable to examine thoroughly substantiated patterns rather than relying solely on preconceived notions.
Abruptly, the roller coaster experience became rough. The roller-coaster ride commenced with a marked escalation in monetary supply expansion, commencing in the initial quarter of 2020, which corresponded with the rapid proliferation of post-COVID-19 stimulus expenditures (primarily funded through the figurative government printing mechanism). A deceleration followed the rise in the economy in the first quarter of 2021 due to the Federal Reserve's decision to increase interest rates and reduce the growth of the money supply to counteract the effects of the stimulus expenditure. The growth of the money supply experienced a negative trend in December of 2022 and has since continued to remain in a negative state.
The related figures from the Fed reveal that real GDP growth rose sharply in 2021, coming in only a hair's breadth behind the increase in money supply growth and that it is already declining. In terms of inflation, the Consumer Price Index (CPI) had an uptick about one year after the boom in money growth and is now experiencing a downward trend after lagging behind by one year.
This brings us to the predicament that we are in now. We have observed what seems to be an abatement in inflation in recent weeks, as seen by a dropping CPI growth rate as well as a lessened growth rate in the Producer Price Index. We have also seen disappointing figures for retail sales, which indicates that GDP growth is on the decline.
When these factors are taken into account, a recession is likely to occur by the end of 2023 or the beginning of 2024, regardless of whether or not there are more bank collapses. This is true even if there are no unexpected adjustments in policy or the international economy. The Federal Reserve should take a more objective view of the situation, be more transparent, and give us regular (at least quarterly) explanations of what is happening, free of bias.