If, in fact, economic growth rates are slowing globally for structural reasons, the implications are far-reaching and not much fun to contemplate. Misery notwithstanding, I present three such implications here which may be self-reinforcing. If nothing else, they may illuminate why policymakers, politicians, investors, and academics seem so obsessed with perpetuating positive growth.
Source: Bloomberg and author’s calculations through 3/31/2016. Calculation notes: Earnings Yield is Last 12 months’ index earnings per share / price; forward returns include dividend distributions but no reinvestment. Averages are simple arithmetic averages.
Consistent with market expectations, the Federal Open Market Committee (the FOMC) left the Fed Funds rate unchanged, at 0.25%‐0.50%. The accompanying statement was in‐line with our and the market’s expectations.
After signaling greater emphasis on downside risk management at the March meeting, the Fed was limited this month in its ability to raise rates or shift their message significantly, especially at a meeting not followed by a press conference. The statement was designed to emphasize that the Fed expects 1) to continue to gradually hike rates and 2) to remain dependent on the economic outlook, specifically inflation developments, as well as global economic and financial conditions.
We can break the Committee’s statement into three parts:
The Fed did not update their economic forecasts in April. The most recent Summary of Economic Projections indicated that the Fed expects inflation to remain below its objective until 2018 and two rate hikes will be appropriate in 2016.
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