What was not responsible was dropping rates 75bps in 2019, the “mid-cycle adjustment” period referenced here. The economy was already roaring and it was widely acknowledged even at the time that this was unnecessary and a concession to political pressure.
https://www.forbes.com/advisor/investing/fed-funds-rate-hist...
Those politically-motivated cuts left the fed with no maneuvering room when (inevitably) a crisis did strike. And we’re still feeling the ramifications of that today, because now we get to do those rate increases during what’s already a recession, instead of during a booming 2019 economy.
This whole situation is a textbook lesson on “why you don’t lower rates while the economy is already roaring just to pump the president’s numbers a little further going into an election year”.
Dunno but maybe raising rates like a year ago to slow the chock now would have been appropriate? Like, I guess they knew all the QE would end up somewhere eventually flooding the market with cash?
Both of those moves look to me like overreactions inspired/emboldened by Bernanke's actions in 2007-8. Powell saw that slamming rates to 0 had helped to prevent a complete collapse of the financial system in 2008 and went with it. He didn't notice that Bernanke did a whole bunch of other stuff too, and that Bernanke was one of the world's foremost experts on the economics of the Great Depression, which certainly helped in 2008.
Is it entirely the fault of the 2019 rate cuts? No, but, we'd have been starting the 2020 games from a position of at least 2.25% interest (perhaps more like 3% if rate increases had continued) instead of 1.5%, that's 50-100% more room for the Fed to maneuver. What's more, it was a blatantly political and obviously stupid move even at the time, and widely acknowledged as such even at the time. There was no need for stimulus in 2019 when the economy was already roaring and it was "pro-cyclical", ie the opposite of the usual "anti-cyclical" policy.
(Also there's technically no reason that zero has to be a bound... the fed can pay you to take money, if it comes down to it. But all kinds of weird things start happening near zero and I think nobody really wants to fuck around and find out there.)
Anyway, we can also blame congress... the Fed has been begging for a decade for more active fiscal policy from Congress rather than forcing everything to be done via monetary policy. And that means more spending when times are tough, and less spending when times are good. When you're in the situation we were in 2008, it's irresponsible not to spend and leads to overexertion of monetary policy to compensate. But absolutely everything was stonewalled during the 2008-2016 period besides military spending. If Congress had engaged in more sustained stimulus and infrastructure spending during that period, the rates probably could have been pulled up a lot sooner (which is of course the balance to the spending).
And in contrast right now is probably not the ideal time for tons of spending either... but I think we are going to get the wonderful experience of "stagflation", inflation during a recession, so addressing one problem worsens the other. And there's really not any obvious tools to deal with that combination, besides just slowing the economy and letting inflation burn out.
The NBER has never failed to call a recession on 2 quarters of negative growth in the past, including during the very same pandemic we are now exiting, which was also a pretty strange time. Past recessions have involved other circumstances, too.
It's literally called a recession because it is a time when the economy is receding. If I had said "depression" or "financial crisis" you could argue that we don't have one of those.
> Q: What is a recession? What is an expansion?
A: The NBER's traditional definition of a recession is that it is a significant decline in economic activity that is spread across the economy and that lasts more than a few months. The committee's view is that while each of the three criteria—depth, diffusion, and duration—needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another.
https://www.nber.org/research/business-cycle-dating/business...
By that definition, even Forbes agrees that we are not yet in a recession.
https://www.forbes.com/advisor/investing/are-we-in-a-recessi...
The only reason the definition of "recession" is such a hot button issue in the US is that it looks bad for a political party to preside over a recession. They happen. At least 4 of the last 6 presidents presided over one. Most of them aren't that bad. It's fine to admit that the US economy has receded over the last 6 months, which it demonstrably has.
EDIT: The NBER, by the way, uses many metrics to declare recessions, and they particularly overweight employment and payroll metrics. The US is currently doing very well by those measures, despite the obvious weakness in the economy. I am assuming the NBER also undervalues the effects of inflation because they don't know what to do about it. That is why most of the world uses an objective definition based on GDP growth.
> The NBER has never failed to call a recession on 2 quarters of negative growth in the past,
However, thus far, despite two quarters of GDP decline, they have not (and from their own definition, it is clear why they have not).
Business Insider believes the state of the job market to be the primary reason why.
https://markets.businessinsider.com/news/stocks/economy-nber...
> The NBER, by the way, uses many metrics to declare recessions, and they particularly overweight employment and payroll metrics
You may consider it overweighted, my point was merely that the use of a single metric is mostly a feature of pundits and not civic institutions like NBER, who you mentioned as arbiters of being-in-receession.
It's the opposite actually. The Fed is raising interest rates to contract the money supply, which will temper inflation. They acknowledge the negative impacts it will have to unemployment and wages, but if you read their press releases, you can tell it's clearly not their intent. Meanwhile, the MSM is spinning it as them wanting to stop wage growth to spark populist outrage and get more clicks.
It's a shame that everyone is intent on badmouthing one of the only somewhat competent parts of the government. The Fed is an easy target because they don't play petty politics. First Trump pressures the Fed to reverse quantitative tightening. Then, during the pandemic, the Republicans badmouth the Fed again for "printing money." Now, the left is criticizing them for "planning to sharply boost unemployment".