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Latest Issue

Federal Reserve Folly

By John Mauldin

July 23, 2021

Unneeded Fire Trucks
Slamming the Brakes
Force-Feeding Liquidity
The Right Course
Washington, DC, Maine, Colorado, and Personal Losses

Great news: The US economy is officially out of recession. We know this because the National Bureau of Economic Research’s official recession-calling committee said so this week. The economy has been in an expansion phase since last April, making this the shortest recession on record at only two months.

The NBER committee always makes these calls in hindsight—both the beginning and end of recessions. Literally everyone could see the economy coming to a halt in March and April. The signs weren’t subtle. Yet it wasn’t until June 8, 2020, that they said the economy had peaked in February, marking the recession’s onset. I don’t blame them for waiting to see the data, though. Caution is appropriate on these things.

But really, 15 months to affirm the economy has been expanding? Their statement was quite specific. They call April 2020 the bottom because that month showed clear troughs in unemployment, GDP, PCE, and personal income ex-transfers. All this was known long ago.

Unlike NBER, a private group with no formal power, the Federal Reserve can actually do something with this kind of information. Nor does the Federal Open Market Committee have to wait for confirmation. It can act whenever it sees a need, which it certainly did when the pandemic struck.

Here’s a handy timeline summarizing the Fed’s near-daily actions in March and April 2020. They did far more than just open the Quantitative Easing spigots ($120 billion a month and counting) and lower the Fed Funds rates to...

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