Thursday, December 2, 2010

Dallas Fed: Current Economic Indicators Do Not Eliminate A Double Dip Recession

Economists at the Dallas Federal Reserve Bank discuss why the current economic signals do not eliminate the fear among economists of a double dip recession.

From The Economic Letter—Insights from the Federal Reserve Bank of Dallas, "Gauging the Odds of a Double-Dip Recession Amid Signals and Slowdowns" by Harvey Rosenblum and Tyler Atkinson:
Concerns and Caveats
The yield curve’s steep upward slope suggests a low probability of a recession in the coming year. Nonetheless, many economists are reluctant to rely on this indicator because the curve’s shape and slope have been distorted by the Federal Reserve’s unconventional monetary policy: a near-zero federal funds rate and a quantitative-easing program that damped intermediate- and longer-term Treasury rates. With near-zero short-term rates, it is almost impossible for a yield curve inversion, that is, short-term rates exceeding longer-term ones.

There is some reason to believe the unemployment rate could climb again. Claims for jobless benefits remain at a level usually associated with an increasing unemployment. Even if the rate does not increase, it remains elevated, straining the overall recovery.

While the current real price of oil does not fit the criterion of a shock, it sits at levels only seen in the early 1980s and 2006–08. An oil supply shock would be especially damaging to the already weak recovery.

Most forecasters project growth at 2 to 3 percent over the next year, but not gaining sufficient momentum to advance safely above stall speed. Until this situation is resolved, policymakers will continue facing pressure to pursue fiscal and monetary measures to guide the economy toward full employment and more robust growth.
.Read the complete Economic Letter here.

No comments:

Post a Comment