Author: John H. Makin / Topic: Development

Author:: John H. Makin
Publication Date:: 06-2005
Content Type:: Policy Brief
Institution:: American Enterprise Institute for Public Policy Research
Abstract:: Paul Samuelson once quipped elegantly that (falling) stock prices had predicted seven out of the last three recessions. There is indeed wisdom in the suggestion to ignore wiggles in the financial markets as indicators of the behavior of the real economy that produces goods and services.
Topic:: Development, Economics, and Government
Political Geography:: United States

Author:: John H. Makin
Publication Date:: 05-2005
Content Type:: Policy Brief
Institution:: American Enterprise Institute for Public Policy Research
Abstract:: The Federal Reserve's measured move toward a "neutral" federal funds rate, the short-term rate that keeps the economy growing at about 3.5 percent, is a tricky process. No one knows with certainty what the neutral fed funds rate is, and it changes over time. As long as the Fed keeps raising rates and the economy keeps growing at or above trend, it is reasonable to infer that the neutral fed funds rate is higher than the current rate. The corollary to that proposition is that rates have to be boosted above the neutral rate, inducing an asset market collapse, a real economy slowdown, or both to infer that the neutral rate has been exceeded. It is beginning to appear as though the current rate of 2.75 percent is at or above neutral. If so, that would be about a full percentage point below what many were guessing.
Topic:: Development, Economics, and Government
Political Geography:: United States

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