Notice how a kitten will jump on anything and everything and is easily distracted. This applies to governmental officials, financial professionals and financial news organizations.
The National Bureau of Economic
Research is a private organization responsible for calling the official timing
of a recession. It states a recession “is a marked declined across the economy
in a range of indicators, including the labor market, investment and spending.”
Usually people tend to look for 2 quarters of downturn in several indicators
including GDP growth (negative), employment (negative), consumption and
spending and other financial measures such as an inverted yield curve. Many of
these measures can be analyzed by month, which is 5 months shorter than the
classical 2 quarter+ measurement of the official bureau. That is why we get the
range of dates or even no date on recession estimations. The only one
officially recognized to call a recession tends to use at least 2 quarters of
historical data before they make a pronouncement.
With
that in mind let’s turn to some news stories. From June 6th, BNN
Bloomberg (Canada), the headline reads “Powell says soft landing ‘very challenging,’
recession possible.” The article suggests that “Powell has given his most
explicit acknowledgment to date that steep rates could tip the US economy into
recession, saying one is possible and calling a soft landing ‘very challenging”
‘. Notice that the language is still couched and nuanced and leaves much room to
wiggle. He still leaves a way for the Fed to claim that they are not
forecasting a recession, yet. In spite of the hikes in the Fed Funds Rate and
the reduction of the Fed balance sheet. The article discusses Powell’s
reactions and actions to inflation reports. Republican have recently been
blasting Powell for not jumping on inflation sooner by raising rates faster.
Again we have the current bandwagon of thought. Watch as comments shifts back
and forth. Powell didn’t do enough, Powell did too much. Remember, the Fed has
a sledge hammer to deliver adjustments and the talking heads including Congress
are reacting as if there is a precise tool. There isn’t and they (Fed) can’t
use it that way (with precision). The Fed has fostered this thinking which is bringing
the problem back to roost (as the saying goes) by their own past statements and
actions. They act as if they can precisely control inflation and growth. They
can’t. So when they get called out for not being able to steer the economy they
have in large measure brought it on themselves by implying they can control.
Again, they can’t. Expect to see more and harsher statements especially from
Congress and talking heads.
Moving
to the 2nd article, from Politico of 7/04/2022. Tag line is “President
Joe Biden says ‘there’s nothing inevitable’ about a recession in the U.S. Right….,
and where is the rest of the statement the country asks? Many are saying the
president is a lone voice in the noise of recession and he probably is at this
point. This is pure politics. Since the president can’t (or shouldn’t) try to
influence the Fed which is supposed to be independent by definition, the
president can make calming public statements and call Powell privately in desperation.
Several Democrats are on record as suggesting this recession thing is not a big
problem, we just need to spend more.
The 3rd
article is from BNN Bloomberg of 7/07/2022. The tag line reads, “US recession
is already here, according to Wells Fargo Investment Group”. Think back to our previous
blog on economic / financial forecasts and notice that here we have the first
news grabbers with a new story or new twist and trying to get out front of the news
competition. We can see the progression of news stories as we went from no
recession to possible recession to more likely recession to predicting
recession in the future (from middle to end of 2023) to now we are in a
recession. Pure news grabbing. Watch to see of others will jump on this bandwagon
or if they suggest something else. Regardless they (the newsies) have a new and
exciting twist to write about which generates copy (not necessarily good copy but
copy).
What
to do. Slow and steady wins the race or in this situation slow and thoughtful
keeps their sanity. You know the news articles and newsies are going to jump on
everything just like our kitten does. Their attention is divided so many
different direction (very much on purpose) because it generates pages to read.
Again, there are few if any consequences in reporting so you have to be
selective in what you read. Watch for things to settle out a bit and see. A
good example is the recession. Since the first of the year the talking heads
started as recession was not likely but a possibility to now a recession is
likely and may be as early as next year. I don’t give much weight to the Wells
Fargo comments about the recession has started because it is the first mention
(a kitten pounced on something let’s all look). That makes it a new idea and
someone was trying to get the jump on everyone else. If they are wrong it doesn’t
matter to them. It’s news. Remember, slow and thoughtful helps you keep your financial
sanity. You don’t have to react to every new thing. Paraphrasing what President
Brigham Young was supposed to have said to the woman who came in for counseling,
“Well sister, if your husband tells you to go to hell, well just don’t go.” If
the newsies, financial pundits and governmental officials tell you we have to
jump, well, just don’t jump (wait and see). Regardless of their screaming we
will figure it out. Earplugs help. Enjoy family, friends and your favorite
sport or book, take a walk, do something fun and relaxing. The screaming, finger pointing and loud noises will still be there when we get back and maybe, just maybe, there might be some calmer voices with some real, helpful information. We can always hope.
https://www.bnnbloomberg.ca/powell-says-soft-landing-very-challenging-recession-possible-1.1782346
https://www.politico.com/news/2022/07/04/recession-talk-surges-in-washington-00043818
