Americans have reason to be glum in the face of better government economic data, and the Federal Reserve is at the heart of their dark mood, according to The Economist.
In the British magazine’s view, the U.S. may simply be the best house in a bad neighborhood.
“America's recovery is the envy of the rich world. On the other hand, that is not saying much. Being the best of the bunch when the bunch has done so miserably is not exactly reason for cheer,” the magazine said in an unsigned editorial.
The Economist noted that both economic growth, as measured by the government’s GDP numbers, and official employment gains have been surprisingly – “even shockingly” – steady and resilient in the past few years.
“But that makes it all the more remarkable that America has made up so little of the ground lost since 2007.
“You can't even eat employment. Incomes you can eat, if you spend them. Real GDP per capita is only a shade above its level of seven years ago: $50,675 now to $49,455 in the third quarter of 2007. At the median the performance has been much worse; real median household income tumbled from 2007 and has barely recovered.”
In The Economist’s view, it is unlikely the U.S. will fall back into recession in the short term, but the unnamed editorial writer noted widespread expectations it will be well into 2016 before the Federal Reserve lets interest rates hit even 1 percent.
“For most of the next two years, in other words, the monetary response to any negative shock, domestic or abroad, will come entirely in the form of unconventional policy. That makes me extremely nervous, as the Fed is obviously uncomfortable about relying so heavily on unconventional tools.”
The current U.S. recovery, in official terms, is already 66 months old – more than a dog’s age, by historical standards. The Economist noted the Fed downplayed the recent sharp downdraft in the stock market.
“Being down so long things look like up is not optimism. America should be performing better, and I find it disappointing that it hasn't and that the Fed doesn't seem particularly interested in working to improve matters. And so I'm pessimistic. I will turn optimistic when the Fed convinces me such a turn is warranted.”
CNN reported that New York Fed President William Dudley has a much sunnier view of the economy now.
Dudley predicts U.S. GDP could hit 2.5 percent to 3 percent in 2015.
"The U.S. economic outlook looks brighter, with growth likely to be somewhat above the trend of the past five years," Dudley said in a speech this week.
Dudley believes it will be good news when the Fed finally begins to raise rates, which of course will make many things, from mortgages to car loans and credit card debt, more expensive for consumers.
"While raising interest rates is often portrayed as a difficult task for central bankers, in fact, given the events since the onset of the financial crisis, it would be a development to be truly excited about," Dudley said, according to CNN. "When the [Fed] begins to raise its federal funds rate target, this would indicate that the U.S. economy is finally getting healthier."
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