The Atlanta Fed GDP Now estimate was revised this morning to negative 1.5% from a prior estimate of positive 2.3%. This huge drop in the estimate reflects the very weak data that has been coming out on retail sales, net imports, inventories and new home sales. The old economy is now in recession as ultra-tight Fed policy takes its toll on the housing market and commercial construction. The normal economic cycle is always caused by a Fed tightening that precipitates a decline in residential and commercial construction. The only reason the whole economy is not in recession is the boom in investment spending on tech. The Fed needs to cut rates immediately or the US will enter a recession in late 2025 or 2026.
We continue to believe that the Fed’s policy framework is very dangerous as it has an arbitrarily low 2% inflation target which caused the Great Financial crisis and the Fed uses an index that has a two-year lag to track inflation, resulting in the Fed being constantly behind the curve.
The Fed has shown no indication it will reform its flawed policy framework. The President definitely has the legal right to fire the Fed Chair for cause, but not for current policy disagreements. The Fed Chair was the architect of the “Transitory” theory of inflation and has asserted that the money supply does not matter. These views precipitated the Great Inflation of 2021 and, therefore, demonstrate clear incompetence justifying termination for cause.
The President should consider firing the Fed Chair in order to facilitate a transition to a superior policy frame work with more flexible guidelines on inflation (2-3%), establishing a price index that responds to real time data, and implementing guidelines on unemployment and nominal money supply growth.
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