December 28, 2022

A consensus is emerging that the forward guidance and related Bernanke monetary policy innovations that began in 2008 led to easy money and low interest rate policies that fueled speculation, ‘excessive’ asset appreciation and ultimately an inflationary bout and a stock market correction. All of this was aided by fiscal policy that focused on income transfer and redistribution while ignoring the disincentives that the policy generated. Like the aftermath of the Financial Crisis, the post Covid recovery is now, according to the administration, moving to a ‘more sustainable’ pace. Yet contrary to the administration’s forecast, we believe that the new trend line will become the “new new normal” - a real GDP growth rate below the long-term real GDP growth rate of 3%. Against this backdrop we then ponder, what is in store for the US and the global economy in the near term?

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