First Trust Advisors

History may rhyme, but it doesn’t repeat. War is uncertain, and while the US and Israel are dominating, investors would be foolish to assume they know every twist and turn to come. Even here at home, where threats exist.

As we expected, the Supreme Court struck down most of the new tariffs President Trump had imposed since taking office thirteen months ago.

If you’re grading the economy based on real GDP, it looks pretty good; if grading based on jobs, not so much.

President Trump finally made his pick for Fed Chair and it is Kevin Warsh. A Wall Street Journal editorial said Warsh has been “the leading voice in public life for reforming the Fed.”

The Federal Reserve held rates unchanged at the first meeting of 2026, while it waits to see what direction inflation, employment, and other policies take in the months ahead.

The Fed meets on Wednesday to discuss the direction of monetary policy. With the futures market pricing the odds of “no change in rates” at 97.2%, no one should expect a rate cut at this meeting…or, we think, anytime soon.

The data are mixed and trying to draw definitive conclusions from it is virtually impossible. This fog should lead everyone to maintain a cautious investment stance. What does that mean? Be careful concentrating too much in high priced sectors of the market. Broaden out. When driving in fog, drive more defensively.

Last year, we thought economic growth would slow. Verdict: GDP data say we were wrong, employment data say we were right. Last year we thought the stock market would decline. Verdict: it did in March and April, sharply, but the S&P 500 ended the year with an impressive 16.4% gain. Overall, we’d say our negativity was unwarranted.

When it comes to interpreting the economy we put a premium on sobriety. One good piece of economic data doesn’t mean a boom, nor does one bad report mean a bust.

This reflection reexamines the traditional Nativity narrative, suggesting that the "no room at the inn" dilemma was a result of government-mandated census pressures rather than the greed of a private innkeeper.

We’re finally breaking out of the clouds! Economists have mostly been flying blind because of the government shutdown, but this week the data really start to flow again. In particular, we get a partial report on the employment situation in October and a full report for November, retail sales in October, and consumer prices in November.

The Federal Reserve concluded its last meeting of 2025 with another quarter-point rate cut, while maintaining its outlook for only one cut in 2026.

This week features two crucial monetary policy events: the widely anticipated Federal Reserve meeting on Wednesday, where a rate cut is expected along with new economic projections; and the Senate hearing on Thursday focused on "The Fed's Big Bank Welfare Program" (IORB regime).

In the ten years prior to the onset of COVID, the consumer prices index rose at an average annual rate of 1.7%. Since the onset of COVID the overall CPI has risen at a 4.2% annual rate. Inflation peaked at about 9.0% back in 2022 but is still hovering between 2.5 and 3.0%, which is above the Federal Reserve’s official target of 2.0%.

Many of you may have recently seen a chart circulating on the internet suggesting a nationwide collapse in home prices is on the way, that we are in the “biggest bubble in history,” the collapse is “inevitable and nothing can stop it.”

Clearly, policies which boost individual freedom, not government engineering, work best. And as usual, the arguments of one political party are often designed to hide the fact that their policies are the very thing they claim to detest in the other.

With the next deadline at the end of January, well past Christmas, another shutdown and spending battle is brewing early next year. Investors will need to watch the next one closely to see if policymakers who want to control deficit spending are able to make progress.

History is absolutely clear – Capitalism is the best system ever developed (actually evolved by human experiment) to boost living standards. At the same time, Socialism has a seriously lousy record.

Regulatory changes and productivity gains could push growth to move even faster in the years ahead. But we are also still dealing with the uncomfortable process of moving away from government stimulus and massive deficit spending that have boosted growth numbers in the post-COVID era but were unsustainable.

A small part of the federal government took a short break from being shut to make sure the Labor Department could deliver the September Consumer Price Index.

As we recently argued, investors don’t need to worry about the federal government shutdown showdown causing a recession. Before the current shutdown, the federal government had been shut for eighty days in the prior thirty years, with none of those days during a recession.

Over the past two and one-half decades the federal government has buried taxpayers under a mountain of debt, now approaching $38 trillion.

No one, that we know of, is saying Artificial Intelligence (AI) isn’t an amazing new technology that will have an important impact on life, investing, and the economy.

Economic data are all over the place. GDP keeps growing in spite of signs of weakness in the labor market. Tariff policy is volatile, immigration has slowed, monetary policy tightened in 2023-24, with the M2 measure of money declining and “real” short-term interest rates consistently higher than at any time since 2010.

The stock market surged to new highs after the Federal Reserve cut the federal funds rate last week and the futures market has priced in more cuts to come. However, these cuts have not helped reduce long-term interest rates and the price of gold has surged to over $3,700 an ounce.

The Federal Reserve cut rates by 0.25% today, citing a rising risk to the employment side of their dual mandate. While that was no surprise, there were many questions on where the Fed would go from here, and what it would take to accelerate or slow the pace of policy adjustment.

In spite of what appeared to be relatively good data, many polls throughout the 2024 election cycle showed more than half of all voters rated the economy as “poor.” That left the Biden/Harris team often wondering why they couldn’t get credit for what official statistics said was a robust economy.

Over the past twenty years, in spite of incredible new technologies, US real GDP growth has averaged just 2.0% at an annual rate. By contrast, in the twenty years prior to the most recent twenty – from the mid-1980s thru the mid-2000s – real GDP grew at a 3.2% annual rate.

For the past two years, we have been warning that the stock market is overvalued. While our capitalized profits model is simple, it is more complex than just looking at price-earnings or price-sales ratios.

Last Friday, Jerome Powell gave the Fed Chief’s annual speech at the Kansas City Fed’s 2025 meeting in Jackson Hole, WY.

Recently, due to deals President Trump is making, some are saying the United States has embarked on a version of Chinese-style “state capitalism” – directly entangling markets and government.

At the last meeting two weeks ago, Chairman Jerome Powell got the Federal Reserve to stand pat on interest rates, but not without a struggle.

It certainly seems hyper-politicization has come to every piece of economic data. Last week’s data are poster children for this, and the overbroad interpretations of the data by investors, the general public, policymakers, and politicians sow confusion.

The Federal Reserve held rates steady for a fifth consecutive meeting, though murmurs have begun in the Fed ranks that the time for more cuts is approaching.

President Trump announced higher tariffs were on the way almost as soon as he took office. As a result, businesses focused on buying foreign goods in advance, to front run those tariffs, putting some of their purchases from domestic producers on the backburner.

Every year the Per Jacobsson Foundation hosts and publishes a lecture on Monetary Policy. Back in 1979, Arthur Burns delivered the annual lecture in Belgrade, Yugoslavia (link). He titled the lecture “The Anguish of Central Banking” and he came clean about the Federal Reserve’s inflationary policies in the 1970s.

In the immediate aftermath of Friday’s much anticipated Employment Report it seemed like the judgement from analysts, talking heads, and even markets was unanimous (or nearly so) that there was good news to celebrate.

In 1852, Karl Marx said "Men make their own history, but they do not make it as they please; they do not make it under circumstances chosen by themselves, but under circumstances directly encountered and transmitted from the past."

Looking back on it, the first quarter of the year was a complete anomaly. Real GDP declined at a 0.2% annual rate, and the left side of the political spectrum said this proved current policies were a disaster.

The Federal Reserve held rates steady today, while also projecting slow economic growth, higher unemployment, and higher inflation. And while the Fed signaled that two further rate cuts are still their base-case for the remainder of 2025, the timing of those cuts remains up in the air.

The United States consumes a large share of its GDP; China, not so much. The result is Yin and Yang. On net, China produces and the US consumes.

Back during the Financial Panic of 2008, clickbait media kept screaming “Hyperinflation.” We consistently pushed back against this theme, and argued inflation would not accelerate.

Conventional wisdom was that the tariffs imposed by the Trump Administration would cause higher inflation and slower growth – stagflation as far as the eye could see. But this past week brought economic news that defied this prediction.

Moody’s finally downgraded US government debt on May 16th to Aa1, its second highest rating. With the US $36 trillion (and rising) in debt, it’s not hard to see why. But Moody’s was late to the party with S&P and Fitch (the other two major ratings agencies) having done so long ago.

Milton Friedman, Art Laffer and other market-believing economists had their long day in the sun during the 1980s and 1990s. Tax rates fell and government spending declined relative to GDP. But – ironically, in the long run, and long after he passed away – John Maynard Keynes got his revenge.

Back on January 10, 2025, it cost $1.024 to buy one Euro. Last Friday, the $/Euro exchange rate was $1.125 – a drop in the value of the dollar of about 10%. Similar moves in the value of the US dollar versus the British pound, Japanese yen, and Canadian dollar also occurred.

The Federal Reserve held rates steady today, while emphasizing that elevated uncertainty has clouded the path forward. If, when, and how much tariff policy will change in the months to come will play a large part in dictating the next move for the Fed.

Noise about tariffs, business uncertainty, a constitutional fight, and a drop in stock prices had already created fear of a recession. When real GDP declined in the first quarter of 2025, some started to question if a recession is already here. Let’s take a deep breath and consider the facts.

As we have written…The Era of Easy Everything is ending. Part of this involves bringing inflation back to the Federal Reserve’s target of 2.0%. We could debate that number, but the Fed is getting closer.

We’ve expected a recession for more than a year now. Simply put…the Era of Easy Everything is Over. Expanding deficits and easy money (that have lifted the economy since COVID) are no longer with us. At the same time, tariff negotiations have created an unbelievable amount of uncertainty.

In this week’s installment of “Three on Thursday,” let’s explore some of the dynamics surrounding the United States dollar. In an era of inflation, massive debt, large deficits, and threats of tariffs, there are persistent rumors circulating that the dollar is at risk of losing its reserve currency status.

We think it’s important for the Fed to move gradually. The US dollar has weakened lately, and, as a result, there is little case for a drastic loosening of monetary policy. The Fed could let up somewhat on bank regulations and capital requirements, which would help the struggling bond market.

The Federal Reserve started raising short-term interest rates three years ago and the M2 measure of the money supply – what Milton Friedman said to focus on – soon started declining, hitting bottom in late 2023.

During the ten years prior to COVID, PCE inflation, the Fed’s preferred measure, averaged about 1.5% per year. Jerome Powell said it was too low and he wanted inflation to “average” 2% over time.

In spite of severe polarization on so many issues, there is at least one thing that Americans agree on across the entire political spectrum, left, right, and center. That is: At some point in the past sixty years, or so, something major went wrong with the US economy and it is still causing problems today.

The Federal Reserve held rates steady today, but downgraded the outlook for economic growth in the year ahead. Policy changes in Washington, looming tariffs, and a cautious consumer have made “uncertainty” the new favorite word in the Fed’s vocabulary.

Every so often we hear a theory that makes sense superficially but on closer examination doesn’t add up. The most recent one is that the Trump Administration wants a recession (or at least wouldn’t mind one) because interest rates would drop, making it easier to service the national debt.

It is true that tariffs are a tax. It is also true that tariff policies have been volatile…on and off again…different carve outs…different countries…phone calls that change things. All of this clearly has an impact on the market. So, we are not surprised to see stock market volatility.

Is the US already in recession? Probably not. But in the first quarter, real GDP is very likely to have a minus sign in front of it. Yes, a negative reading for real growth!

We have called inflation “political kryptonite” because it is so damaging to politicians. Clearly, inflation played a role in the 2024 election. So now that President Trump sits in the Oval Office, his opponents have been trying hard to link anything and everything in his agenda to inflation.

The Framers of the Constitution designed our government to be small. Not so small and weak as the one under the Articles of Confederation, which the Constitution replaced, but small nonetheless.

The federal government gets a great deal of grief when it issues economic reports and it’s not hard to see why.

The Federal Reserve made it clear on Wednesday that it’s not about to cut short-term interest rates again anytime soon, which is good news if you’d like to see the Fed live up to its goal of bringing inflation down to 2.0%.

Following 100 basis points in rate cuts through the back half of 2024, the Fed started 2025 with a pause, placing itself in wait and see mode for the foreseeable future.

We still believe the odds of a recession are higher than most investors think. Monetary policy tightening started back in 2022 and inflation remains above the Federal Reserve’s 2.0% target, which means the Fed will be reluctant to get loose anytime soon.

As economists and financial market forecasters, we are constantly amazed at how so many people analyze, forecast, research, and discuss important topics without ever addressing the elephant(s) in the room.

If you’re going to remember one important fact about the housing market, it’s that with the brief exception of COVID, the US has consistently built too few homes almost every year since the housing bust got rough in 2007.

The College Football playoffs included 12 teams this year and all five automatic berth teams (because they won their conference championships) are now out, including the top two ranked teams, Oregon and Georgia. It wasn’t supposed to turn out this way, and the debate about why has only just started.

Jimmy Carter, the thirty-ninth president of the United States passed away this weekend, at age 100, the first former president to ever reach that milestone.

The Bible story of the virgin birth is at the center of much of the holiday cheer this time of year. The book of Luke tells us that Mary and Joseph traveled to Bethlehem because Caesar Augustus decreed a census should be taken.

The Federal Reserve cut interest rates for the third time this year but signaled the path forward will likely be more gradual – and less certain – than previously forecast.

The most fun anyone has had at a Jerome Powell presser was when a reporter asked about President Trump removing Powell from his job.

Why hasn’t tighter monetary policy caused a recession? One reason: federal budget deficits have been huge.

It’s hard to keep track of all the theories about inflation. Remember policymakers and analysts blaming the surge in inflation in 2021-22 on supply-chain disruptions, too much government spending, and Putin invading Ukraine? Now some are saying that tariffs and deportations are going to cause a second surge in inflation.

he Tax Cut and Jobs Act (TCJA) was passed in 2017, otherwise known as the Trump Tax Cuts.

In our lifetimes, the best comparison for Trump’s election win is Ronald Reagan’s in 1980. That election, like this one, pitted big spenders and champions of government against tax cutters and critics of government.

The new Trump Administration hasn’t wasted any time since last week’s election win, with new information around economic policy and staffing appointments making news on a daily basis. In our opinion, the recent announcement of a new Department of Government Efficiency or “DOGE” headed by Elon Musk (who obviously came up with this name and acronym) and Vivek Ramaswamy, has been the most important so far.

The Federal Reserve cut short-term rates by a quarter percentage point last week, like pretty much everyone expected. In addition, the Fed didn’t push back hard against market expectations of another quarter-point cut in mid-December, so unless the economic or financial news changes dramatically by then, expect a repeat at the next meeting.

While investors and institutions were digesting the results of Tuesday’s elections, the Fed was meeting to determine the path forward for rates. Following on the 0.5% (50 basis points) start in September, the Fed cut rates by a further 0.25% today and the markets are forecasting another cut to come in December, but the odds of that move have ticked lower.

It’s almost over! Unfortunately, those texts might not stop right away. Unless this election is an unexpected blowout, some key states won’t have full counts of all their ballots for several days.

To paraphrase Milton Friedman: There are four ways in which you can spend money. You can spend your own money on yourself. You can spend your own money on somebody else. You can spend somebody else’s money on yourself. Finally, you can spend somebody else’s money on somebody else.

With third quarter GDP being reported next Wednesday – less than a week before election day – the US is still not in recession.

There are two types of economists in the world…demand-siders and supply-siders. Without digging too deeply, one huge difference shows up in government policy.

The federal debt is already $35 trillion and currently rising by roughly $2 trillion every year – with no end in sight. As a result, some investors are worried that the US could become a 21st Century version of Argentina: completely bankrupt and unable to pay the bills.

Like it does once every year, last week the Commerce Department went back and revised its GDP figures for the past several years. And while the top line revisions to Real GDP were pretty small, there was a larger revision to corporate profits.

With only one week left in the fiscal year, it looks like the budget deficit for the federal government for Fiscal Year 2024 is going to come in at about $1.9 trillion, which is 6.7% of GDP.

The Fed began the process of rate cuts today, and they came out not with a whimper, but with a bang, cutting rates by 0.5% (50 basis points). Following the June meeting, Fed members forecast it would be appropriate to cut rates once – by 25 basis points (bps) – in 2024. Three months on, they have already surpassed those expectations, and forecast further cuts before the year is through.

You don’t have to read or listen for long these days before you hear a politician, pundit, or politically-inclined person say: “Government spending causes inflation.”

Friday’s employment report suggests the US economy may be slowing down faster than most investors think

We all knew it was coming…and in Jackson Hole, Federal Reserve Chairman Jerome Powell said it will come next month. He said, “the time has come,” and the futures markets have priced in either a 25 or 50 basis point rate cut at the meeting on September 18.

Unfortunately, when it comes to the government, what’s old is sometimes new again.

Pretty much every month there’s one week that has the most important economic reports. For the month of August that’s this week. The reports this week include consumer price inflation, producer prices, retail sales, industrial production, housing starts, and unemployment claims.

The growth of bureaucracy around the world has led to a proliferation of rules. This creates multitudes of problems, one of which is that the state has made understanding what it is doing impenetrable, boring, nuanced, and technical.

As Milton Friedman taught us many decades ago, monetary policy works with long and variable lags. Recent economic reports suggest that the long and variable lags on the tightening of monetary policy in 2022-23 are starting to come to an end.

Could this be the last Fed meeting before rate cuts begin? With inflation moderating and job growth weakening, the Fed prepared markets for a more eventful meeting in September while not committing to anything just yet.

Listen to enough politicians and it won’t take long to hear about the lack of “affordable” healthcare, drugs, daycare, and housing. This was going on long before inflation returned after COVID. Everyone wants affordable things.

There are signs US economic growth is slowing down. In particular, jobless claims, perhaps the best high-frequency economic indicator, have averaged 235,000 per week in the last four weeks versus 211,000 in the first quarter.

The lags between a shift in monetary policy and the economic impact are long and variable. While the actions of the Federal Reserve during the pandemic were unprecedented, it finally looks like the excess money pumped into the economy has worked its way through the system. And with the M2 measure of the money supply down from its peak, the economy is reacting.

We aren’t naturally cynical about economic data, but there are things that don’t add up about the job market.

In 1852, Karl Marx said "Men make their own history, but they do not make it as they please; they do not make it under circumstances chosen by themselves, but under circumstances directly encountered and transmitted from the past."

Back in the early days of COVID, there was one key indicator that signaled or predicted the high inflation ahead: the M2 measure of the money supply. Unlike in the aftermath of the Financial Panic and Great Recession of 2008-09, M2 surged at an unprecedented pace in 2020-21.

Last week, Donald Trump proposed replacing the income tax with a tariff on imports. Washington DC let out a loud, and collective, scoff. The average American was intrigued. More on this in a few…but to be clear, the idea as it stands won’t work in our current system.

Today, the Fed made it clear there’d be fewer rate cuts in 2024, most likely one or two, with a start more likely after the election than before. Meanwhile, the Fed made a mess out of explaining its logic for their new path forward.

With a Presidential election less than five months away, expect to hear a great deal of discussion about inequality: the gap between the rich, the poor, and the middle class.

One of our main contentions in recent months is that the Federal Reserve, by switching from a scarce reserve model to an abundant reserve model, has completely taken over the short-term interest rates marketplace.

Two reports on home prices arrived this morning, one for the Case-Shiller index and another from the FHFA (a government agency that regulates Fannie Mae and Freddie Mac). Both rose in March, and housing prices are up 6.5% and 6.8%, respectively, in the past year.

Back in 2008, the Federal Reserve made important changes in the way it handles monetary policy. We’ve written about them several times, but few really understand. The press won’t ask questions about it and few economists discuss them.

One theory making the rounds is that if President Trump gets back into office, inflation is going to surge.

If the financial markets have a religion, we think we know what it is: a deep and abiding faith in the ability of an omniscient Federal Reserve to ride to the rescue if and when the economic weather turns bad.

No shortage of things to discuss after today’s Fed statement and subsequent press conference.

Austrian Economics argues that growth comes from innovation and entrepreneurship, with “the market” directing resources to areas of the economy that provide the greatest returns.

The economy continued to grow in the first quarter at what we estimate is a 2.6% annual rate. That’s a slowdown from the 3.1% rate in 2023, but still good compared to the past couple of decades when the average growth rate has been 2.0%.

Mistakes in both geopolitical and fiscal policies compound over time, often leading to more mistakes.

In the waning seconds of one of the most watched women’s college basketball games ever, a foul was called.

Several years ago some politicians started demanding that the Federal Reserve get audited. We think the idea has some merits but also some drawbacks, as well.

We’ve mentioned this before, but it bears repeating. It seems that investors pay as close attention to what the government is doing, as they do to actual business news. We don’t think investors are wrong to do this, but it’s only because government has become so big.

There was zero chance the Fed was going to cut rates today; instead it was all about what today’s meeting, the dot plot, and the press conference meant for the timing and pace of rate cuts in the months ahead.

The Fed meets this week, which means investors and analysts will be sifting through Wednesday’s FOMC statement, updated economic projections, the “dot plots,” and Powell’s press conference searching for any signal – real or imagined – about what our central bank will do next.

If you only look at the headlines about the monthly payroll report, the job market has looked surprisingly strong in recent months.

Washington DC continues to spend much more than it gets in revenue. In the Calendar Year of 2023, the federal government spent $6.3 trillion but only collected $4.5 trillion in taxes.

Every day this week, investors will get data on the economy. New home sales today, then capital investment, GDP, consumer incomes and spending, manufacturing, and auto sales are on the list. All of this will feed into the outlook for what the Federal Reserve might do with interest rates this year.

A key economic mistake people make is thinking growth leads inflation. One reason they do that is because inflation is a monetary phenomenon. When money is too easy, first growth rises, and then inflation rises with a longer lag due to excess dollars in the system.

On the surface, there’s much to like about the job market. But when you get into the details, it’s not quite as strong and some things don’t add up.

Rate hikes are in the rearview mirror, now the issue is when the Federal Reserve starts to cut.

The economy is still growing. Real GDP rose at a solid 3.3% annual rate in the fourth quarter, and consumer spending was strong in December meaning the first quarter is off to a good start.

The economy slowed substantially in the last quarter of 2023 from the rapid pace of the third quarter, but, as we explain below, still expanded at a moderate rate.

The leaders of the House and Senate have come up with a new budget deal, and many people aren’t happy. It still needs passing by January 19th, or else the government, evidently, may shutdown. We doubt that this will happen, but the fight over government spending seems to drag on year after year after year.

The employment sector has undergone a tumultuous journey over the past four years, and recently the trajectory of job gains has experienced a gradual deceleration over the past year, prompting speculation about the future.

Last Friday’s jobs report showed nonfarm payrolls up 216,000 in December, beating the consensus expected 175,000. Many are arguing that this was a huge number proving that the economy is not going into recession.

Just because we still think the economy is headed for a recession, doesn’t mean we think the housing market is going to get killed.

Very early this year our economics team got a pleasant surprise: Consensus Economics, which collects forecasts from roughly 200 economists around the world, rated us the most accurate forecasters of the United States for 2022, based on our forecasts for GDP and CPI. Unfortunately, we don’t expect a repeat award for 2023.

The Federal Reserve declared victory today, projecting a soft landing as its base case in the years ahead, with more cuts in short-term rates, and with inflation gradually getting back to its 2.0% goal without a recession.

For the first time in roughly fifteen years, interest rates in the United States are about right. In economics, we call it the “neutral” or “natural” rate.

Widely regarded as a barometer for the overall stock market, the S&P 500 Index tracks the performance of 500 of the largest companies listed on U.S. stock exchanges.

New home prices are much lower than a year ago. The average price of a new home sold in October was 10.4% lower, while the median price was down 17.6%.

When Argentina entered the 20th Century, its prospects looked bright. On a per person basis, its economy was on par with Canada and Sweden and about two-thirds of the United States.

Now that we’re about to enter the Christmas shopping season, expect even more focus than usual on the consumer over the next several weeks.

The primary holder of U.S. Federal debt is, surprising to many, the U.S. federal government itself, accounting for approximately 40% of the total outstanding debt.

Starting in mid-2020, we began worrying about and forecasting higher inflation. The reason behind this was our belief in Milton Friedman and his view that inflation is “too much money chasing too few goods.”

Two weeks ago, the yield on the 10-year Treasury Note was hovering around 5%, and the S&P 500 was in contraction territory, down over 10%.

The Fed kept rates unchanged at today’s meeting, but whether they are done with rate hikes or simply at a pause is yet to be determined.

The S&P 500 closed at 4,117 on Friday, more than 10% below its recent peak in late July. Some are saying it’s a brand-new bear market for stocks.

We still think a recession is coming, but it definitely didn’t start in the third quarter. Instead, as we set out below, it looks like real GDP expanded at a 4.7% annual rate.

With annual deficits now in the trillions and interest payments on government debt at all-time highs, something needs to change.

At the end of October we will get our first look at real GDP growth for the third quarter and it looks like it was very strong.

Back in 2008, Ben Bernanke and Hank Paulson, using fear of financial collapse, convinced President Bush and Congress to 1) pass a $700 billion bailout of banks (called TARP) and 2) allow the Federal Reserve to pay banks interest on reserves at the same time the Fed moved from a scarce reserve model of monetary policy to an abundant reserve policy.

The fiscal year ended last week, alarms went off both literally and figuratively, and a last-minute deal was reached to keep the government open for another forty-five days.

The Atlanta Fed’s GDP Now model is tracking a Real GDP growth rate of 4.9% for Q3, which would be the fastest quarterly growth rate since the earlier part of the COVID recovery.

While the Fed kept rates unchanged at today’s meeting, between the press conference and forecast updates, Powell and Co. gave plenty of ammo to keep the financial press busy speculating about what may come at the next FOMC meeting this Fall.

The University of Colorado Buffaloes are undefeated and suck up a lot of oxygen in the college football world.

Inflation averaged 1.8% in the ten years pre-COVID. Don’t expect inflation to average that low in the decade ahead. Not until the US finds a way to repeat the 1980s policy mix.

Back in the 1980s, President Reagan took enormous political heat (Sam Donaldson comes to mind) for being fiscally irresponsible. His offense? Presiding over a budget deficit that peaked at 5.9% of GDP in Fiscal Year 1983.

At the heart of our assessment of the stock market is our Capitalized Profits Model.

What’s going on with the markets and the economy? Long-term Treasury yields are up substantially since last Fall while the stock market, after a big rally, has stumbled so far this month. Meanwhile, the real economy appears to continue to chug along – even accelerating!

Wars cost money, and throughout history, countries have borrowed to fight them. There are plenty of examples of wars bankrupting countries, but the US was so dominant in the 1940s that at the end of World War II, its debt only cost about 1.8% of GDP to service.

What would you do if you won the Mega Millions? It’s now up to a record $1.55 billion! We would start a not-for-profit to educate people not to play the lottery.

Take the 2008 financial panic. Was it market failure and bad business models or was it using the government to subsidize housing plus mark-to-market accounting? We believe the latter…without the subsidies and bad accounting rules, the recession might not have happened at all.

No one should be popping champagne when they see Thursday’s GDP report. The good news is that it won’t be negative.

The best news last week was that inflation came in below expectations for June. Consumer prices rose a moderate 0.2% for the month, while producer prices increased only 0.1%.

Prior to 2008, when the Federal Reserve ran a “scarce reserve” monetary policy, just about every bank in the US had a federal funds trading desk. These trading desks lent and borrowed federal funds (reserves) amongst each other.

In 1852, Karl Marx said, "Men make their own history, but they do not make it as they please; they do not make it under circumstances chosen by themselves but under circumstances directly encountered and transmitted from the past."

We get a big bunch of data reports this week: GDP revisions and economy-wide corporate profits for the first quarter; durable goods, new home sales, personal income, and consumer spending for May; home prices for April.

Lately, it’s been easy to see the optimism. As of the Friday close, the S&P 500 is up 15% so far this year (not including dividends) and up 23% (again, without dividends) versus the lowest bear-market close back in October.

The Federal Reserve will meet this week and announce its decisions on Wednesday.

We have used the word “unprecedented” to talk about the economy during and after COVID. We have never before locked down economic activity, while printing trillions of new dollars to help finance trillions of extra government borrowing to pay people not to work.

The stock market finished Friday on a high note, with the S&P 500 index just north of 4,200 for the first time since August 2022 and up 17.6% versus the market bottom in October.

We live in unprecedented times. Since the COVID pandemic, the economy has been deeply influenced by a massive increase in government spending, COVID-related shutdowns, and a huge increase in the money supply.

If you’ve been to a high school or college commencement lately, then you know the drill: at some point at least one speaker will urge the graduates to be “agents of change,” suggesting they’d like to see these students make the world a better place through some sort of social activism.

It’s hard to open up a newspaper these days and not see a scary story about the debt ceiling debate. The Biden Administration is saying that a “default” is approaching if an agreement isn’t reached soon.

Yes, we have banking problems. No, this is not 2008. It’s much more like the 1970s Savings & Loan problems.

The Fed raised short-term interest rates by another quarter percentage point today to a range of 5.00 – 5.25%, just like most analysts and investors expected. In addition, policymakers made changes to its official statement that hint that this rate hike might be the last of the cycle.

For nine of the last fifteen years, few people thought about the Fed. Sure, we discussed QT and QE, but the Federal Reserve held interest rates at zero year after year.

In spite of weakness in some economic data, problems in the banking sector, and much higher interest rates, real GDP in the first quarter will almost certainly show moderate growth.

The US economy is being tugged in two different directions right now. On the positive side we have the lingering effects of the massive stimulus of 2020-21, the renormalization of the service sector after COVID Lockdowns, and, as always, the entrepreneurial and innovative spirit of the American people.

History is full of economic and societal collapses. The Incan and Roman societies disappeared, the Ottoman Empire fell apart, the United Kingdom saw the pound lose its reserve currency status. So, anyone who says the US, and the dollar, couldn’t face the same fate doesn’t pay attention to history.

Fifteen years ago, in 2008, the Federal Reserve started an experiment in monetary policy, switching from a “scarce reserve” system to one based on “abundant reserves.” This switch has created massive problems that are hitting not just the private banking system but the Fed itself.

If you were bullish for 2023…congratulations!

The Federal Reserve raised short-term interest rates by another quarter point on Wednesday.

The Fed raised short-term rates by another 25 basis points (bp) today and made no changes to the expected peak for short-term rates later this year.

The late great Supreme Court Justice Antonin Scalia was often in dissent in key legal cases during his long career.

In multiple ways, this is the most difficult time we have ever seen to make a forecast.

In the past few weeks, a growing chorus of economists and investors have decided that the pessimistic narrative had it wrong all along, that the US isn’t headed for a hard landing, which would mean a recession, it isn’t even headed for a soft landing, which would mean a prolonged period of low economic growth.

You can’t read or watch financial news these days without a heavy dose of speculation about what the Fed is going to do with short-term interest rates, when it’s going to do it, and how long it’s going to do it for.

Markets have been volatile, with reports convincing many that the Fed is done hiking rates.

At the beginning of the season, not many predicted that the Philadelphia Eagles would be in the Super Bowl this year.

The Fed downshifted to a smaller rate hike to start 2023, but the job is far from done.

The US federal budget is on an unsustainable path…but not for the reasons that most people think.

First, the good news: we estimate that real GDP grew at a solid 2.8% annual rate in the fourth quarter.

We wrote last week about the soft landing that markets now seem to expect.

Not long after Friday’s Employment Report multiple analysts and commentators were calling it a “goldilocks” report, by which they meant it showed that the economy was neither “too hot” nor “too cold,” but instead, “just right.”

The housing sector was a huge and early beneficiary of the super-loose monetary policy of 2020-21.

Last week Zero Hedge achieved the impossible, they managed to make a report from the Philadelphia Federal Reserve go viral.

What a difference a year makes!

The Fed downshifted to smaller rate hikes but isn’t close to done.

Our position on the economy has been that the US is headed for a recession, but we’re not quite there yet.

It’s that special time of the year, and we will all hear and read a great deal about Black Friday, Thanksgiving Weekend, and Cyber Monday during the next few days. Many pundits are going to make sweeping conclusions about the economy based on these very limited reports.

We will forever believe that locking down the economy for COVID-19 was a massive mistake. There is virtually no evidence that death rates were lowered by government mandates and lockdowns.

Election day is tomorrow and will bring results for key Senate, House, and Governors races from all around the country, plus local legislative races and more.

The Federal Reserve plans to keep raising rates at future meetings, but at a slower pace than it has for the last four meetings.

After nearly three years of the economic and financial market distortion due to COVID lockdowns, money printing, and massive government borrowing, some of these distortions are subsiding

Most investors we talk to think the US is already in a recession or that a recession will start by the end of 2022. We think they’re wrong on both counts.

The Nobel Prize in Economics was recently awarded to former Federal Reserve Chairman Ben Bernanke, as well as professors Douglas Diamond and Philip Dybvig, for their work on understanding the role banks play in the economy, especially during a financial crisis.

Recent economic reports further undermine the politically-motivated argument from earlier this year that the US was already in a recession.

We are not “recession deniers,” we just don’t think one has started yet.

We had been bullish on stocks all the way back to March 2009, when mark-to market accounting was fixed and the Financial Panic started to recede

The Federal Reserve once again voted unanimously to raise rates by three-quarters of a percentage point - 75 basis points (bps) - today, bringing the target for the federal funds rate to 3.00 – 3.25%, and signaled expectations for continued hikes ahead.

We know many people think we are beating a dead horse, but this horse is far from dead.

If you’re still wondering how much the Federal Reserve will raise short-term interest rates next week, you should wonder no more: the Fed is almost certainly going to raise rates by three-quarters of a percentage point (75 basis points), just like it did back in both June and July.

The housing sector surged during COVID in large part due to loose money.

The Dow Jones Industrial Average fell more than 1,000 points on Friday, caused apparently by Fed Chairman Jerome Powell’s attempt to use a brief speech to channel the ghost of Paul Volcker.

One thing we must remember when looking at economic data, is that everything is distorted.

We live in unprecedented times.

With less than three months left before the 2022 mid-term elections, it is officially silly season when it comes to interpreting economic reports.

With the Senate having passed a budget plan yesterday with only Democratic votes as well as a tie broken by Vice President Harris, it is only a matter of time before President Biden signs the first significant tax hike since the “Fiscal Cliff” tax hike in early 2013.

The Federal Reserve raised short-term interest rates by three-quarters of a percentage point (75 basis points) on Wednesday.

To many investors, this week’s GDP report is more important than usual.

If you follow the financial press, the conventional wisdom has come to the simple conclusion that the way to fight inflation is raising interest rates. Unfortunately, this is just not true.

How many times have you heard that the US dollar will collapse because of Fed and fiscal policy?

Some investors think the US is already in a recession. As we wrote two weeks ago and as recent data have confirmed, we don’t think that’s the case.

As we celebrate 246 years of national independence, our country is now more than two years into an economic recovery from the two-month COVID Lockdown Depression.

We've told people to watch the M2 measure of money in order to understand whether inflation will cool down or heat up.

Real GDP declined at a 1.5% annual rate in the first quarter and, as of Friday, the Atlanta Fed's "GDP Now" model projects zero growth in Q2.

We became bullish about stocks once mark-to market accounting was fixed in March 2009.

The Federal Reserve raised rates by three-quarters of a percentage point (75 basis points) today, the most at any meeting since 1994 and exactly the move Chairman Jerome Powell was dismissive about in early May after the last meeting.

Investors are worried.

All eyes will be on the results of the Federal Reserve meeting on Wednesday when it announces how much it's going to raise short-term rates, its new projections for the economy and short-term rates for the next few years, as well as Chairman Powell's press conference.

JP Morgan CEO Jamie Dimon caused a stir lately when he talked about a "hurricane" hitting the US economy.

We are now about five months away from the mid-term elections that will decide who controls the Senate and House of Representatives for the next two years.

At least a couple of major retailer stocks got clobbered last week as investors sold on reports that they missed earnings estimates.

The consensus among economists puts the odds of a recession starting sometime in the next year at 30%, according to Bloomberg's most recent survey.

At the end of 2021, we set out our projections for the stock market in 2022: 5,250 for the S&P 500 and 40,000 for the Dow Jones Industrial Average.

"Transitory" is out, "expeditious" is in.

Ultimately, inflation is always and everywhere a monetary phenomenon, as the late great economist Milton Friedman used to say.

No one can say that the Federal Reserve can't do the impossible.

Real GDP, in the US, grew 5.5% in 2021, the fastest growth for any calendar year since the Reagan Boom in the mid-1980s.

When interest rates go up, many analysts start to worry about recessions.

Intellectuals and politicians often try to verbally summarize or justify conventional thinking in pithy ways.

Inflation is a political lightning rod.

Normally when we write about public policy – monetary policy, taxes, spending, trade, and regulations – we mainly focus on what we think policymakers will do and the likely effects on the economy or the financial markets.

As expected, the Federal Reserve raised short-term rates by one quarter of a percentage point (25 basis points) earlier today, the first rate hike since the end of 2018.

With every passing month, politicians and economists try to blame inflation on anything but excess money growth.

Russia's invasion of Ukraine led western nations to impose the most draconian economic sanctions in the modern era.

They say the truth is the first casualty of war...so, here we are about one week into the Russian invasion of Ukraine and the fog of war is still very thick.

Late last year we unveiled our stock market forecast for 2022, projecting the S&P 500 would rise to 5,250 and the Dow Jones Industrials average would climb to 40,000.

The financial markets have been on tenterhooks lately for two main reasons: Russia and rate hikes.

Nothing is normal about the current business cycle; it really is unique.

The Federal Reserve’s policy statement from last week plus Jerome Powell’s post-meeting press conference made it abundantly clear it is ready to start raising short-term interest rates in March.

The Fed stayed the course today, with no change in the Fed Funds rate, no adjustment to the pace of tapering, no shift in the timeline for raising rates, and no indication that they intend to lift rates in larger steps.

When fourth quarter GDP data is released later this week, it will show that 2021 finished on a high note.

Consumer prices rose 7.0% in 2021, the largest increase for any calendar year since 1981.

Many analysts were disappointed by last Friday’s job report for December, but we think the headline masks an overall report that shows continued improvement in the labor market and a possible surge in small-business start-ups and entrepreneurship.

Welcome to 2022! We can't imagine a more transformative year for America. After two years of unprecedented government actions, the winds of change are blowing hard.

The Bible story of the virgin birth is at the center of much of the holiday cheer this time of year. The book of Luke tells us that Mary and Joseph traveled to Bethlehem because Caesar Augustus decreed a census should be taken. Mary gave birth after arriving in Bethlehem and placed baby Jesus in a manger because there was "no room for them in the inn."

From 30,000 feet, the COVID lockdown and re-opening played out pretty much like we thought.

A renominated Powell is a different Powell. The Federal Reserve didn't raise interest rates today, a policy move we think is overdue, but it made major changes that set the stage for multiple rate hikes in 2022 and beyond.

We were bullish in 2021 and bullishness obviously paid off. As of the Friday close, the S&P 500 is up more than 25% so far this year.

In recent weeks, the stock market has decided the economic pain associated with an eventual tightening of fiscal and monetary policy is more likely to come sooner rather than later.

On Friday, news of a COVID-19 variant identified in South Africa, and the announcement of new travel restrictions, sent markets reeling. This is obviously not the only variant, and it won't be the last, either.

As Americans gather among family and friends to celebrate Thanksgiving, we all have much to be thankful for.

Inflation is back and worse than it's been in decades. Consumer prices rose 0.9% in October and are up 6.2% in the last twelve months. Two more months of moderate increases, and the CPI will be 6.5% in 2021, the highest inflation since 1982.

In spite of what listening to the mainstream media might make you think, the voting public doesn't change much from year to year or election to election. As a result, when leaders try to take policy too far in one direction, without enough public support, they often get punished at the polls.

The Federal Reserve today announced the (much-overdue) start to tapering, which means it will continue to increase the size of its balance sheet, but not quite as fast. Starting later in November, the Fed will reduce its monthly pace of asset purchases to $105 billion per month from the current rate of $120 per month.

Investors will be focused on the Federal Reserve this week and our expectation is that it will finally announce an overdue tapering of quantitative easing. In addition, we expect Chairman Jerome Powell to make it clear in the press conference that he expects tapering to be completed by mid-2022.

When the US fell into the COVID crisis, the federal government went on a massive spending binge. Pre-COVID, in the twelve months through March 2020, federal outlays were $4.6 trillion, or 21.4% of GDP. In the next twelve months outlays soared to $7.6 trillion, or 36.2% of GDP.

Politics today is in large part about pitting one group against another and convincing one side they've been treated unfairly. One of those groups is the younger generation of workers known as Millennials, who are supposedly up to their eyeballs in debt and lagging well behind prior generations.

In 2009, after overly strict mark-to-market accounting rules were altered, we said the Financial Crisis was over. It was hard to get our voice heard, though, because both sides of the political aisle were busy saying the economy stunk.

No changes to monetary policy today, but plenty of changes to the outlook for monetary policy in the next few years.

Prior to today, the S&P 500 index was down four days in a row, and many market observers are blaming China, specifically the recent news about Evergrande, a major Chinese real estate company that looks to be heading to default on its loans.

Some analysts and investors breathed a big sigh of relief on inflation when it was reported last week that the Consumer Price Index rose 0.3% in August versus a consensus expected 0.4%. But we think any sense of relief is premature.

If you've read our two most recent Monday Morning Outlooks, you know we raised our forecast for the S&P 500, but lowered our forecast for real GDP growth. How can that be?

In early 2020, when COVID hit, the unemployment rate in the United States was 3.5%, wages for low-income earners were rising faster than wages for high-income earners, living standards were rising...the economy was on a roll.

We've been consistently bullish on stocks since 2009. This bullishness has paid off, although not every year; stocks fell in 2015 and 2018.

Narratives get more energy these days because of social media and cable TV, but they've always existed.

As we wrote last week, it's not possible to analyze the economy these days without focusing heavily on what government is doing.

In an ideal world, analysts and investors wouldn't have to spend much time, perhaps none at all, trying to manage around changes in government policy.

Last week, the government reported real GDP in the US grew at a 6.5% annual rate in the second quarter and was up 6.4% at an annual rate in the first half of 2021.

It's the question that parents around the world know all too well, "Are we there yet?" That was the key question coming into today's Fed meetings. The answer? Not yet, but we're getting closer.

Someone once said, "technology has never moved this fast, and at the same time, will never move this slow again."

Another quarter for consumers to rely on massive stimulus payments, extremely loose monetary policy, and the continued re-opening of the US economy combined to push real GDP up at a very rapid pace in the second quarter, with the federal government preparing to release its initial estimate of economic growth on July 29.

Many are convinced that a US stock market correction, or even a bear market, is inevitable. So, when the S&P 500 was down 1.6% last Thursday, many thought it had arrived.

Many analysts have been thinking and writing about the "twin deficits" and whether the record-breaking size of those two deficits, combined, mean the US dollar is about to plummet versus other currencies.

One of the key decisions President Biden will make later this year is who is going to run the Federal Reserve for the next four years.

As expected, the Federal Reserve made no significant changes to monetary policy today.

To drive home his commitment to easy monetary policy and low interest rates in mid-2020, Federal Reserve Chairman Jerome Powell declared the Fed was not even "thinking about thinking about raising rates."

We keep hearing people make comparisons between this recovery and those of the past as if it's apples-to-apples.

Talk about revisionist history!

Inflation is running hot.

The US economy is recovering rapidly from the COVID-19 disaster.

One of the best economic debates that's happening right now isn't between Republicans and Democrats or liberals versus conservatives, it's between policymakers who want to go full steam ahead with as much fiscal and monetary "stimulus" as possible and center-left economists who worry about the economic effects of over-stimulating the economy.

President Biden and Congress agreed to a roughly $2 trillion stimulus back in March and are now contemplating two new additional multi-trillion dollar pieces of legislation, on both infrastructure and social spending, as well as some massive tax hikes

Nobody expected the Fed would lift interest rates today

Mix extremely loose monetary policy, a federal government cutting checks like it’s going out of style, and extensive roll-out of the COVID-19 vaccines, and what do you get?

The S&P 500 fell almost 50% between mid-February and mid-March 2020, during the initial stages of the pandemic.

Housing prices have soared in the past year. The national Case-Shiller index is up 11.2% in the past twelve months, the largest gain since 2005-06.

When the scientists said “15 days to slow the spread,” some of us actually believed that by Easter the shutdowns would end.

The federal budget deficit hit an all-time record high of $3.1 trillion last year.

You've got to hand it to the Federal Reserve. With the cleverness of a seasoned head coach – think Jim Boeheim leading Syracuse in the NCAA basketball tournament – they figured out how to accomplish a great deal while making it look like they didn't have many tools at their disposal.

At its most recent meeting the Federal Reserve made no changes to monetary policy and minimal changes to its statement, simply acknowledging that some economic indicators have "turned up" recently while also noting that inflation remains below 2.0%.

We believe inflation is still, and always will be, a monetary phenomenon. It is defined as "too much money chasing too few goods and services" – but that doesn't mean every period of higher inflation is going to look exactly the same.

The Full Employment and Balanced Growth Act of 1978 gave the Fed a “dual mandate” – to promote maximum sustainable employment and stable prices. Over the years, the meaning of these two mandates has changed.

Those of us who are concerned about inflation increasing faster than the Federal Reserve anticipates are focusing on the rapid increase in the M2 measure of the money supply.

After receiving the genetic sequence of the novel coronavirus from China, it took Moderna just two days (two days!!) to generate the sequence of the vaccine. In less than a month, they produced the first clinical batch of the mRNA-1273 vaccine that has now seen tens of millions of doses distributed.

Things are looking up for the US economy. Later this week we'll get an update on real GDP growth for the 4th quarter of 2020. We estimate that'll be revised up to a 4.3% annual rate of growth from a prior estimate of 4.0%.

Ever since the stock market bottomed in 2009 during the financial crisis, people have been coming up with reasons why the bull market was about to end. We heard every reason – Brexit, the end of Quantitative Easing, too much debt, COVID, etc. – and while we understood each may be a cause for consternation, we focused on valuations, which suggested the bull market would continue. Over time, math wins.

While the US has been a focus for criticism throughout the COVID-19 pandemic, its vaccine rollout has so far been the envy of the world. Since Operation Warp Speed eliminated many of the bureaucratic hurdles to FDA approval and helped deliver a vaccine in record time, the US has been steadily growing its distribution system.

Inflation is not dead. It is not gone. It has not been tamed. We know it seems like it, especially after the past few decades which generated in many an "inflation-complacency" that feels justified. After all, following the 2008 Financial Panic, many predicted Quantitative Easing would cause hyper-inflation.

Yes, 2021 is starting off as crazy as 2020. They don't agree on the Green New Deal, or Socialism, but Ted Cruz and AOC both agree that limiting investor access to markets is a mistake. In case you missed it, last week, Robinhood, a new online trading platform that marketed itself as democratizing investment, stopped investors from buying certain stocks.

Beyond the annual rotation of voting members on the Federal Open Markets Committee (FOMC), there wasn't change in today's Fed statement. While acknowledging the moderation in some recent economic data, and that weakness is concentrated in areas most directly impacted by the pandemic...

The budget deficit for fiscal year 2020, which ended 9/30/2020, was $3.1 trillion, the highest ever on record in dollar terms, and the highest relative to GDP since World War II. This year the deficit will be even larger.

The double-dip recession so many feared didn't arrive in the fourth quarter of 2020, and it certainly doesn't look like it will happen in early 2021, either.

The seemingly endless election of 2020 is finally over, with Democrats winning both Senate seats in Georgia.

When it comes to attracting people, jobs, and businesses, some states are just better than others. While the total US population increased 6.5% from 2010 to 2020, it increased 17.1% in Utah, 16.3% in Texas, 16.3% in Idaho, 16.1% in Nevada, 15.8% in Arizona, and 15.3% in Florida.

We can't possibly exhaust our thoughts on all these topics in one Monday Morning Outlook, but we thought we'd give it the old college try.

The Bible story of the virgin birth is at the center of much of the holiday cheer this time of year. The book of Luke tells us that Mary and Joseph traveled to Bethlehem because Caesar Augustus decreed a census should be taken. Mary gave birth after arriving in Bethlehem and placed baby Jesus in a manger because there was "no room for them in the inn."

Nobody expected to see a rate change from this week's FOMC meetings, but interest remained high as the market awaited the latest Fed forecasts on where they see the US economy headed from here.

Back room deals in Washington, DC always die and come back to life, over and over, again. And, even though a "COVID-shutdown rescue package" seems like a no brainer, it's been caught up in politics for months.

The COVID-19 Recession is the weirdest we've ever had. There is no way anyone could have forecast it. It did not happen because the Fed was too tight. It did not happen because of a trade war. It was self-inflicted, caused by COVID shutdowns.

In December 2019, we made a year-end 2020 forecast of 3,650 for the S&P 500. With the index closing Friday at 3,638, that looks like a very good call.

Who's in charge of fiscal policy? That's the real issue behind the recent dispute between Treasury Secretary Steve Mnuchin and Federal Reserve Chairman Jerome Powell regarding the Treasury's decision to end certain emergency lending facilities by December 31, 2020.

Give Thanks! The US economy continues to heal. Payrolls keep growing, unemployment claims - though still elevated - are shrinking, key measures of the manufacturing and service sectors remain well into positive territory, and, as this week should show, both retail sales and industrial production remain on an upward trajectory.

While the election is still not certified, and court battles will drag on, it appears that we can draw two firm conclusions from the 2020 election. First, the pollsters were horribly wrong again. Secondly, American voters do not want a radical shift in economic policy.

If you hadn't known that there was a Federal Reserve statement coming out today, you wouldn't have missed much. As if 2020 wasn't weird enough, there was a Federal Reserve meeting, and a new statement from the FOMC today, and virtually no one noticed. We guess that makes sense given everything that is going on. But, don't fret - nothing changed.

As the US opened up, real GDP rebounded sharply in the third quarter, growing at a 33.1% annual rate. However, real GDP is still down 2.9% from a year ago and the economy got a huge boost from spending by the federal government, which borrowed from the future in order to allow people to spend today.

To reiterate, this Thursday morning we expect the government to report a huge, and virtually unprecedented, surge of a 33.4% annualized growth rate in real GDP growth for the third quarter. There are still a few monthly reports due this week that could affect our forecast, but only slightly.

There is nothing normal about the 2020 recession. Massive nationwide shutdowns of "non-essential" businesses caused real GDP to drop at a 31.4% annual rate in the second quarter, the biggest drop since the 1930s. However, as we expected, a V-shaped recovery is being traced out.

COVID lockdowns crushed the economy in the first half of 2020, with real GDP down 5.0% at an annual rate in the first quarter and 31.4% at annual rate in the second quarter, the latter of which was the steepest drop in real GDP for any quarter since the Great Depression in the 1930s.

Over the past couple of decades, the Federal Reserve has coalesced around an idea about inflation that is little more than theoretical, with no real data to back it up. That "idea" is that 2% inflation is the "correct" amount of inflation.

The second quarter of 2020 was the mother of all economic contractions. Real GDP shrank at a 31.7% annual rate, the largest drop for any quarter since the Great Depression.

The Federal Reserve was already holding short-term interest rates near zero. What today's meeting made clear was how determined the Fed is to hold them there for at least the next few years and perhaps well into the current decade.

As we near the end of the third quarter, key economic reports will be released that will influence our forecast for third quarter real Gross Domestic Product. It will be a very strong quarter.

When government forces businesses to close (even if it is for a pandemic), it's a "taking" in the legal sense. And we can think about $3 trillion in extra federal spending as "just compensation" to businesses and workers for that taking. Basically, we decided to borrow from future generations in an attempt to stop a virus and save the economy.

At the end of 2019 we made the same exact forecast for the end of 2020 — the strangest year in our lifetimes, and it's not even over. Compared to most analysts, this was a very bullish call. And then, when the market hit a pre-COVID19 peak of 3386 in mid-February, if anything we looked not bullish enough.

The US economy got crushed in the second quarter, with the worst decline in real GDP for any quarter since the Great Depression. However, the long road to recovery has started and, for now, we're penciling in real GDP growth at a 20% annual rate for the third quarter. Of all the parts of the US economy that have weathered the COVID-19 storm, none has been as resilient as the housing market.

Election Day is eleven weeks from tomorrow. In political time, this is an eternity. However, with the White House, about one-third of the Senate, and the entire House of Representatives on the ballot, this election is significant. Particularly because the two presidential candidates have such stark differences in policy perspectives, especially with respect to taxes.

It's going to take years for the US economy to fully heal from the economic disaster brought about by COVID-19 and the government-mandated shutdowns which continue to limit economic activity across the country.

These days, pretty much everything is hyper-political, including death rates from disease, wearing masks, opening schools, whether some demonstrations are "mostly peaceful" or "violent," and now GDP.

Right now, it looks like the US economy shrank at a 35% annual rate in Q2. To put that in perspective, the worst quarter we've ever had since the military wind-down immediately following World War II was -10% in the first quarter of 1958, when, not by coincidence, the US was hit by an Asian flu. This is going to shatter that record by multiples and will likely be the worst since the Great Depression.

"There is no such thing as a free lunch." It's been attributed to many different people, Milton Friedman and Robert Heinlein, among others. Regardless of who said it, we think it's one of the most basic economic truths.

It's time to think about something other than COVID, statues, the election, and defunding the police. How about higher education? Specifically, student loans and grants.

Not since the 1960s and 70s has the United States experienced social upheaval like it is experiencing today. We have protests (both peaceful and otherwise), and a massively divided political landscape. On top of that, we have a virus that is spreading across the country, creating fear and an acceptance of economic shutdowns.

In the aftermath of recent strong gains in jobs, some analysts have been latching onto pandemic-related classification errors to claim the headline unemployment rate is at best distorted to show an overly optimistic picture of the labor market, and at worst a downright lie to try and manipulate public perceptions.

A resurgence of new Coronavirus cases around the country has created uncertainty for investors. Stock markets fell last week, not because of the virus, but because investors fear another round of economy-killing, government-mandated lockdowns. We don't expect that to happen, but when the government is involved, risks are definitely higher.

Turning off the global economic light-switch, and then turning it partially back on, has sent shockwaves through economic data that, while anticipated, have been jaw-dropping in both directions.

The one key takeaway from last week's Fed meeting is that monetary policymakers are set to keep short-term interest rates near zero for as far as the eye can see. Not forever, but at least until 2023. Keep this in mind in the week ahead, as we get more reports confirming the economic recovery started back in May.

The most important takeaway from today's Fed meeting is that policymakers don't expect to raise short-term interest rates until at least 2023.

The recession that started in March is the sharpest downturn since the Great Depression. As it turns out, it was also the shortest.

A full recovery from the COVID-19/Shutdown Crisis is going to take a long time. We don't anticipate reaching a new peak for real GDP until the end of 2021; we don't anticipate a 4% unemployment rate until 2024.

This year's experiment with government-imposed lockdowns has been a fiasco. We should have been focused on sealing-off nursing homes and limiting mass indoor events, while the vast majority of businesses that were shutdown could have kept operating, with natural social distancing.

The coronavirus kills, everyone knows it. But this isn't the first deadly virus the world has seen, so what happened? Why did we react the way we did? One answer is that this is the first social media pandemic. News and narratives travel in real-time right into our hands.

The largest federal budget deficit since World War II came back in 2009, as slower growth and increased government spending during the subprime-mortgage financial panic pushed the deficit to 9.8% of GDP. This year's the budget deficit will, quite simply, blow that record out of the water.

In December 2018 with the S&P 500 at 2,500, we forecast it would hit 3,100 by the end of 2019 and then pushed our forecast to 3,250 as stocks soared. The S&P 500 rose 28.9% in 2019 and hit that revised target on the first day of trading in 2020.

The Federal Reserve has been extremely aggressive since the Coronavirus and related shutdowns hit the US economy and made it clear today that it will continue to be so until the US economy has gotten back on its feet.

Before the Coronavirus, the US economy was cruising for what looked like 3% annualized growth in real GDP in the first quarter. But the effects of both natural social distancing and government-mandated lockdowns crushed economic growth in March.

With each passing week, the economic damage wrought by the Coronavirus and the resulting shutdowns grows larger. It's not just businesses, both small to large, feeling the pain. Educational institutions, hospitals, churches, not-for-profits, and state and local governments are all finding it hard to remain financially viable.

Normally, we're not big fans of enhanced unemployment benefits. But the current severe economic contraction brought about by the Coronavirus and the government-mandated shutdowns of businesses meant to stop the disease is a completely different animal from a normal recession.

Doctors think differently than economists. They put patients with a potential for brain damage in an artificial coma to stop swelling, and when it stops, they bring them out. This fits with the Hippocratic Oath all doctors take, which states "First, do no harm." The idea is to "limit" damage and then "restart" a more normal body with fewer problems.

In order to be better prepared in the future, we need a vibrant private sector, not a permanent expansion in government.

The government-mandated shutdown of business, and the massive drop in economic activity it is causing, may actually do more harm to the United States than the coronavirus itself. Early estimates suggest the U.S. economy will contract at a staggering 20% annualized rate in the second quarter, and the number may move even higher.

Due to fears about the Coronavirus – more specifically, the forceful government measures designed to halt its spread, the US is on the front edge of the sharpest decline in economic activity since the Great Depression.

Back in July 2008, then-Treasury Secretary Hank Paulson said he wanted a "bazooka" to deal with financial threats to Fannie Mae and Freddie Mac. Paulson wanted Congress to give him an unlimited credit line for these enterprises. This time around, it's the Federal Reserve firing a bazooka at the Coronavirus, with more possibly to come.

Coverage around the virus has been almost exclusively negative, as experts extrapolate worst case scenarios to spur action. It should come as little surprise then, that fear of a recession has moved to the forefront of many minds. At times like these, we think it's crucial to look at the data and note some positive developments that aren't getting as much media coverage.

No one knows with any real certainty how much, or for how long, the Coronavirus will impact the US economy. What we do know is that it will have an impact. And, after data releases of recent weeks, we also know that the US economy was in very good shape before it hit.

By the time you read this, the Fed may already have cut rates. That is the situation we find ourselves in given the recent correction in equities, which were at a record high only eight trading days ago but were down 12.8% from that peak as of the market close on Friday.

Monday, fear over the Coronavirus finally gripped investors, as both the Dow Jones Industrial Average and the S&P 500 index fell over 3% - the largest daily declines in two years. These drops wiped out all the gains for the year.

One of the worst bipartisan policy decisions in the past generation was the aggressive government push in the 1990s and 2000s to promote homeownership, beyond what the free market could handle. Policymakers encouraged Fannie Mae and Freddie Mac to gobble up lots of subprime debt, in turn boosting lending to borrowers who couldn't handle their loans.

Thirty years ago, many in the US were in fear that a rising power in Asia was on the verge of eclipsing the US. Now it's China, back then it was Japan.

In January, US payrolls expanded by 225,000, not only beating the consensus forecast, but also forecasts from every single economics group. Since January 2019 (12 months ago), both payrolls and civilian employment – an alternative measure of jobs that includes small-business start-ups – are up 2.1 million.

Fears about the coronavirus knocked down equities last week, while a flight to safety brought the yield on the 10-year Treasury down to 1.51% at the Friday close versus 1.69% the week prior and 1.92% at the end of 2019.

The first Federal Reserve statement of the new decade proved one of the most uneventful in years, with virtually no change from the December outlook that suggested rates will stand pat in the year ahead.

The Federal Reserve is set to make its first policy statement of the year on Wednesday, so this is as good a time as any to reiterate our view that the Fed is likely to keep short-term interest rates steady through 2020 and, while pressures will build, the Fed seems content to hold them steady next year, as well.

Back in mid-November, the highly respected GDP forecasting model from the Atlanta Federal Reserve Bank (also known as "GDP Now"), estimated that real GDP would only grow at a 0.3% annual rate in the fourth quarter, which, if accurate, would have been the slowest growth for any quarter since 2015. At the time, we were forecasting economic growth at a 3.0% rate.

The US economy is not in an economic boom, but growth has been consistently faster than during the Plow Horse phase from mid-2009 through the end of 2016. Real GDP has grown at a 2.6% annual rate since the start of 2017 versus 2.2% beforehand.

The longest economic recovery on record continues, with January being the 128th consecutive month of growth. The first seven years, from mid-2009 through 2016 saw average real GDP growth of 2.2%. Since the start of 2017, US real GDP growth accelerated, to an average annual growth rate of 2.6%, while the unemployment rate now stands at the lowest level in 50 years (and is likely headed lower).

The current expansion won't last forever. But we don't see it ending anytime soon.

The Bible story of the virgin birth is at the center of much of the holiday cheer this time of year. The book of Luke tells us that Mary and Joseph traveled to Bethlehem because Caesar Augustus decreed a census should be taken. Mary gave birth after arriving in Bethlehem and placed baby Jesus in a manger because there was "no room for them in the inn."

A year ago, we projected the S&P 500 would hit 3100 at the end of 2019. In spite of the swoon in equities in the fourth quarter of last year, we didn't see a recession coming and our model for estimating fair value for the stock market was screaming BUY.

No one expected the Federal Reserve to change short-term rates today and no change was made. Meanwhile, the Fed made no significant changes to its policy statement and the statement was unanimous.

A year ago, conventional wisdom became convinced that a stock market correction was really the beginning of a "bear market," and a sure sign that recession was on its way. Oops. Conventional wisdom was wrong again.

During the next couple of days you're going to see lots of stories about the strength of consumer spending. Early reports say Black Friday online sales hit a record high, up 14% from a year ago, following a 17% increase on Thanksgiving Day itself. Black Friday sales at brick and mortar stores were up 4.2% from a year ago.

Last December, almost 12 months ago, we set our year-end 2019 target for the S&P 500 at 3,100. Many thought we were way too bullish, but our model for the stock market suggested 3,100 was well within reach. We believed the bull market had plenty of room to run.

One of our favorite economic parables is the Fish Story, from Paul Zane Pilzer's 1990 book, "Unlimited Wealth." It is an excellent tool for thinking about wealth creation, inequality and redistribution.

Since the earliest days of the current economic expansion, there have been naysayers asserting the US was on the brink of another recession. Remember all the fear about another wave of home foreclosures, or a disaster in commercial real estate, or the Fiscal Cliff, or Greece potentially leaving the Eurozone, or German bank defaults, or even the inverted yield curve earlier this year?

To little surprise, the Fed cut short-term interest rates by 25 basis points today for the third time in four months, moving the range for the federal funds rate down to 1.50 – 1.75%. What markets were looking for, and what the Fed statement did little to provide, was clarity on the path of interest rates moving forward. Thankfully, Chairman Powell addressed the path forward head-on in his press conference.

At the close of business on Friday, the futures market in federal funds was putting the odds of a 25 basis point rate cut on Wednesday at 90%, which would place the federal funds rate in a range between 1.50 and 1.75%, the lowest it's been since mid-2018.

Trade disputes have been an ongoing soap opera since President Trump took office. From steel tariffs to trade skirmishes with China, Japan, Canada, Mexico, South Korea, and the European Union, among others, it's been hard to keep track!

In spite of all the fear-mongering about a recession, Friday's employment report clearly showed we are not in an economic downturn. The best news in the report was that the unemployment rate fell to 3.5%, the lowest most Americans have seen in their lifetimes.

In Ronald Reagan's famous A Time For Choosing speech in 1964, he said "...the more the plans fail, the more the planners plan." We were reminded of this recently after pundits freaked out when the New York Federal Reserve injected reserves into the banking system to keep some short-term rates from rising.

Never underestimate the ability of politicians to mess up a good thing. They're certainly trying in Washington, D.C.

In the past few days, stresses in the financial system have shown up. These stresses have pushed the federal funds rate above the Federal Reserve's desired target range of between 2.00% and 2.25% (as of Tuesday), and some reports have funds trading as high as 9%.

"We are all Keynesians now," is a phrase that caught on in the late 1960s and early 1970s, variously attributed to Milton Friedman and President Richard Nixon. Uncle Milty was commenting on the general political/economic environment, not saying he was a Keynesian. Richard Nixon, on the other hand, actually said "I am now a Keynesian."

We've all heard of the Rorschach test - you know, the one where you look at an ink blot and say what you see. The theory is that it's a tunnel into someone's subconscious thoughts or desires.

Labor Day is probably the best time to take stock of the American worker and, for them, it's rarely been better. The unemployment rate is near the lowest level since the 1960s, job growth remains robust, and wage growth is in a general accelerating trend.

Analysts were very quick to pin the blame for weakness in stocks late last week on the trade war with China. We agree that uncertainty regarding the future of US-China trade relations was a drag on equities, but think it was far from the only reason for weakness. In fact, it wasn't even the most negative news of the week.

The link between an inverted yield curve and a recession has so dominated recent financial news that for some investors it's no longer a matter of whether we get a recession, but how long until it starts.

More than five years ago the European Central Bank adopted negative interest rates as a policy tool to address economic weakness in the Eurozone. Starting at -0.1%, eventually the target short-term rate fell to -0.4%.

The Fed is flailing. For the past several years, under the leadership of both Jerome Powell and, before that, Janet Yellen, the Fed claimed it was "data dependent." But the decision last week to reduce short-term rates by 25 basis points tore that narrative to shreds.

The Fed cut short-term interest rates by 25 basis points today, moving the range for the federal funds rate down to 2.00 - 2.25%. It also announced it will stop reducing its balance sheet in August, two months earlier than previously planned.

A cottage industry has sprung up in the past decade with the sole focus of discrediting any good news on the economy. When President Obama was in office, the attacks mostly came from the right. With President Trump in Office, the attacks mostly come from the left.

This Friday, the government will release its initial estimate of real GDP growth in the second quarter, and the headline is likely to look soft. At present, we're projecting an initial report of growth at a 1.8% annual rate.

Until recently, Fed Chair, Jerome Powell sounded a consistent theme: the Fed is data dependent and will stay that way, unswayed by noise or pressure from politicians.

The S&P 500 is up 27% from its Christmas Eve low, and 19.3% this calendar year through the close on Friday – not including dividends. Last December, our forecast for 2019 was 3,100. We're just 3.7% away.

As of today, the current economic expansion is the longest in US history. Ten years and a day. But just because it's the longest doesn't mean it's the best. The expansions of the 1960s, 1980s, and 1990s, all beat it out both in terms of the pace of growth as well as the total growth during the cycle...

The narrative that the U.S. economy is in trouble – some say teetering on the edge of recession - has become so powerful and persuasive that few investors give it a second thought. So of course, they believe, the Fed should cut interest rates.

The Fed got as dovish as it could get today without actually cutting short-term rates.

A few key economic reports have taken a turn for the better, boosting expected real GDP growth in the second quarter and pointing to an upward revision to first quarter growth.

At the Friday close the market consensus was that the Federal Reserve would cut short-term interest rates by 50 - 75 basis points in 2019, with another 25 basis point cut in 2020. We think this is nuts.

We haven't been worried about a trade conflict with China, which has a long track record of pirating intellectual property and is a potential military rival in the (not too distant) future. The US has enormous leverage with China, given our trade deficit with the country and the ability of firms to shift supply chains toward alternatives, like Vietnam, Mexico, and India.

One consistent theme we've heard lately among pessimistic analysts and investors is that slower growth abroad is a headwind for economic growth in the US. Softness in Europe or China, they say, bodes poorly for the continuation of US expansion. The standard theory, the conventional wisdom, is that slower growth abroad means slower growth in US exports.

At the close of activity on Friday the futures market in federal funds was projecting a 75% chance of at least one rate cut this year. From now through the end of 2020, the market is projecting two rate cuts.

Since hitting new all-time highs two weeks ago, the S&P 500 has fallen about 2.2% as trade negotiations with China hit a snag. Last week, the US announced new tariffs on Chinese imports. This morning, China announced new tariffs on some US goods. Many fear a widening trade war.

If you take a long hike up a mountain, there's plenty to appreciate along the way. But, sometimes, you just have to stop and enjoy the view. With that in mind, let's forget about the April employment report – which saw a combination of very fast payroll growth and moderate wage growth – and think about where the labor market stands in general.

Hold off on the Fed statement for a moment, Chair Powell's press conference was the real news today. He noted that both GDP and employment came in above expectations while inflation surprised to the downside.

Less than two months ago, conventional wisdom thought the US economy was in real trouble. The consensus expected real GDP would barely grow, if at all, in the first quarter of 2019.

It wasn't that long ago that some economists and investors were seriously concerned about US growth going negative for the first quarter. Now, based on our calculations, which we discuss below, it looks like real GDP grew at a respectable 2.6% annual rate in Q1, meaning that US real output was 3.1% larger than Q1-2018.

The Dow Jones Industrials Average and S&P 500 are breathing down the neck of record highs set last Fall. Some take that as a sign to sell, time to shift out of equities and realize gains. We think that would be a mistake.

Last month many economists had pushed down their estimates for first quarter economic growth to near zero. The Atlanta Fed's "GDP Now" model was projecting real GDP growth at a 0.2% annual rate in Q1, which would have been the slowest growth since the weather-related negative reading in the first quarter of 2014. But this time it was seen as a new trend leading us toward a recession.

It's true the yield curve is flat - inverted in some places - but that's because the market is pricing in a rate cut. We don't see it, nor do we see the reason for it.

From just about every significant group of thought leaders – the press, politicians, economists, analysts, and government officials – the narrative of the past twelve years has been all about government and nothing about the entrepreneur. They say the crisis ended because of government bailouts and easy money. It's an artificial sugar high, covering up fundamental problems that still exist and could come back without the Fed's support.

The Federal Reserve just made their most dovish shift in outlook since the aftermath of the financial crisis. The FOMC statement, economic projections, and "dot plot" (the expected path of rate hikes) all tilted dovish. In addition, the Fed has decided to maintain a significant portion of the bloated balance sheet it gathered during and after the crisis. In other words, their stated path of "renormalization" will leave the balance sheet well above normal levels.

The environment on Capitol Hill has made populism a bipartisan affair, with Republican Senator Marco Rubio now joining the fray with a call to tax corporate stock buybacks.

It's March 8, 2009. The market's down 56% from its all-time high, unemployment is over 8% and hurtling toward 10%, it's just been reported that real GDP dropped at a 6.2% annual rate in Q4 of 2008, and it feels like the world is coming to an end.

Real GDP grew at a 2.6% annual rate in the fourth quarter, and while some analysts are overly occupied with this "slowdown" from the second and third quarter, we think time will prove it statistical noise.

The clock is winding down, and the United Kingdom has some major decisions to make. Should it stay in the European Union or should it go? If it goes, under what terms? Some analysts and investors are concerned about a "Hard Brexit,"...

The most important quote from the Financial Panic of 2008 came from President Bush: "I've abandoned free market principles to save the free market system."

Whatever happened to the recession calls? Seems like just a few weeks ago that the correction in the stock market, as well as the partial government shutdown, had convinced many analysts and investors the US was about to enter a recession.

We've written about it over and over, and while many advisors seem to understand, the media, politicians, and many analysts don't...or won't. So, we thought we'd try again to explain why so many people don't understand the nearly ten-year long bull market in U.S. equity values.

The Doves won the day at the Federal Reserve, which noted continued solid economic performance but removed longstanding language that further gradual increases will be warranted, and instead highlighted global developments – both economic and financial - and a moderation in inflation as reasons the Fed will be "patient" in determining the pace of future rate hikes.

When it comes to monetary policy, one thing looks certain for 2019 - journalists, pundits, investors, and analysts will pay it way more attention than it deserves. The spotlight is currently on Wednesday, when the Federal Reserve will issue their first statement of the new year. The consensus expects no changes in rates, and we agree.

Normally, the end of January sees the government's first estimate of real GDP growth for the fourth quarter. But with no end in sight for the shutdown, which has already seen numerous other data releases postponed – including figures on retail sales, international trade, inventories, construction, and durable goods - it's very unlikely the GDP report will arrive on time.

For the more than three decades we have been involved in analysis of the economy, one nagging constant has been pessimistic prognostications over the U.S. debt. Now once again, debt is the news de jour. Consumer, business, and government debt are all at record highs, and, therefore, the theory goes, the economy is tempting fate.

Talk about destroying a narrative. On Friday, the Labor Department reported 312,000 new jobs in December, with an additional 58,000 from upward revisions to prior months. Recession talk got crushed.

Early in 2018 we said the US economy has gone from being a Plow Horse to Kevlar. Nothing that has been thrown at the economy since – neither trade conflicts nor tweets, not higher short-term interest rates nor the correction in stocks – is likely to pierce that armor.

The Bible story of the virgin birth is at the center of much of the holiday cheer this time of year. The book of Luke tells us that Mary and Joseph traveled to Bethlehem because Caesar Augustus decreed a census should be taken. Mary gave birth after arriving in Bethlehem and placed baby Jesus in a manger because there was "no room for them in the inn."

Today's much anticipated Fed meeting brought answers and new questions. As expected, the Fed raised rates 25 basis points to a range of 2-1/4 to 2 1/2 percent, marking a fourth rate hike in 2018.

Last week in the New York Times, Yale economist Robert Shiller wrote we are "experiencing one of the greatest housing booms in United States history." Given what happened in the aftermath of the last boom – a financial panic and the Great Recession – this will add to investors' fears about another recession lurking around the corner.

In a recent interview, former Fed Chair Janet Yellen warned that excessive corporate debt could exacerbate the pain of the next economic downturn. 

Last Friday, the 10-year Treasury Note closed at a yield of 2.85%. That's up from 2.41% at the end of 2017, but down from the peak of 3.24% on November 8th, and well below where fundamentals suggest yields should be.

New Narrative Alert: Fed Chief Jerome Powell is to blame for the volatility in stocks. Back on October 3rd, with stock markets near their record highs, Powell said "we're a long way from neutral." That was not long after the Fed had moved the federal funds rate to a range of 2.00% to 2.25%...

It's that time of the year again. Holiday sales data show surging online sales while foot traffic at brick and mortar stores remains tepid. If you have a sense of déjà vu, it's because you heard the same stories last year.

Fed Chair Jerome Powell and others have started a new narrative about economic "headwinds." They think past rate hikes, slower foreign growth, and "fading fiscal stimulus" should slow the Fed's rate hikes. But is fiscal stimulus really fading?

Politics and economics are interwoven. Government grants licenses, enforces contracts and the rule of law, provides fire and police protection, a national defense, and can call on resources to recover from crisis. Without these institutions, activity would slow. No one is building billion-dollar hotels in Syria, Libya, or Iraq; stability and certainty support investment.

No fireworks in today's FOMC statement, as Chairman Powell and company held rates steady while reinforcing their outlook. Unemployment remains low, household spending remains strong, and inflation is running in-line with their 2% inflation target. In other words, today's near unanimously expected pause looks almost certain to be followed by a rate hike at the December meeting.

Growth is determined by a perpetual tug-of-war between entrepreneurship and government redistribution. When President Obama was in office, we believed incredible technological innovation would allow for economic growth in spite of Obamacare, greater redistribution, higher taxes and increased regulatory burdens. We thought it would be a Plow Horse Economy, and that things would get better if we did not grow government so much.

A solid 3.5% real GDP growth rate reported for Q3 wasn't enough to appease the doomsayers. They say inventories boosted growth and that can't last. Plus, they say, business investment was soft.

Economic growth continued at a robust rate in the third quarter, supporting the case for both a continued bull market in stocks and further rate hikes from the Fed.

Not long ago, many investors were kicking themselves for not investing more when the stock market was cheaper. But when stocks fall, like they did last week, many investors have a hard time buying for fear stocks may go lower still.

Federal Reserve Board Chairman, Jerome Powell, who has been remarkably quiet as he adjusts to his new role at the Fed, finally roiled markets last week. He made comments on Wednesday, during the Atlantic Festival at a session moderated by Judy Woodruff of the PBS News Hour.

As far as Harvard economist Martin Feldstein is concerned, we're all doomed. Feldstein says that the low interest rates of the last several years have created a stock market bubble rivaling the housing bubble that precipitated the last crisis. Why? Let's start by looking back.

As expected, the Federal Reserve raised rates by 25 basis points today. And at this point, the outlook for the remainder 2018 looks largely determined, with both 75% of Fed officials and the markets pricing in one more rate hike in December to make it four for the year.

The Federal Reserve meets on Wednesday and there's one thing we know for sure: it's going to raise rates by another 25 basis points, lifting the federal funds rate to a range from 2.00 to 2.25%.

The U.S. federal government reported last week that it ran a deficit of $214 billion in August, the fifth largest deficit for any single month in US history.

Friday's jobs report finally included what appears to be evidence of the long-awaited acceleration in wage growth.

In spite of woeful prognostications to the contrary, the US economy seems to be wearing Kevlar. Rate hikes, tariffs, Turkey, you name the fear, the economy remains unscathed. Case in point, through all the supposed turmoil, the U.S. grew at a 4.2% annual rate in the second quarter and looks set for a similar pace in Q3.

For decades the United States has, directly and indirectly, subsidized global growth. For example, after World War II, the U.S. provided direct economic aid to Western Europe with the Marshall Plan, while also helping to rebuild Japan. And since then, we have provided never-ending direct aid to foreign countries, which has been a constant political football,

"Wealth creation" versus "the redistribution of wealth" is an age-old political/economic battle. And once again, Senator Elizabeth Warren - among others - has capitalism in the crosshairs.

Something strange happened after last Friday's jobs report - the yield on the 10-year Treasury Note fell, finishing Friday at 2.95%, down four basis points from Thursday's close. To us, this makes no sense. If anything, it serves to reinforce our view that the bond market is making a big mistake.

The Federal Reserve made no changes to monetary policy today and it barely changed the language of its statement. That makes sense to us because we haven't changed our outlook for monetary policy or the economy, either.

Paul Krugman, Larry Summers and Bob Gordon have some 'splainin to do. Where's that "secular stagnation?" Since 2009, they, along with many others, have said the US economy is stuck at 2% real growth. Their theory got traction after 2009, as the U.S. saw what we called a Plow Horse Economy.

Economic growth surged in the second quarter this year. The only question is, by how much?

The yield spread between the 2-year and 10-year Treasury Note has narrowed to 25 basis points, its smallest spread since 2007. This has many investors worried the narrowing spread will lead to an inversion of the yield curve (when short-term rates exceed long-term rates) – which throughout history has often occurred prior to a recession.

The US labor market is going from strength to strength. Like with corporate earnings, June jobs data beat consensus estimates - up 213,000 - pushing the average monthly gain for the past year to 198,000 per month.

At least three reasons suggest the Democrats should be optimistic about taking control of the House this November.

What do the internet and China have in common? For better or for worse, policymakers are no longer treating them with kid gloves. This past week, the Supreme Court reversed a decision made before the dawn of the internet that prevented states from taxing sales to their residents unless the business had a "physical presence" in the state. Now, each state gets to decide whether those sales get taxed.

We've always been skeptical that bond yields carry deep meaning about the future. Low Treasury bond yields in recent years were said to be a signal of slower growth, or possibly a recession, ahead. And the bond world said stocks were over-valued.

To little surprise, the Federal Reserve hiked interest rates by 25 basis points following today's meeting. Of much greater note are the hawkish changes made to the text of the Fed's statement (and with no dissents), as well as changes in the forecast materials.

According to former Fed Chair Ben Bernanke, the U.S. economy will get a Wile E Coyote surprise in 2020. You know, just when everyone thinks he caught the Roadrunner, Wile notices he has run straight off a cliff, plummets seemingly forever before hitting the bottom in a cloud of dust, and then, just for spite, an anvil lands on his head.

In over thirty years of watching the economy we've seen recessions, recoveries (both slow and fast), panics, lulls, and boomlets. But we've rarely seen a job market this strong.

Arthur, I heard you're retiring from AEI after a spectacular run. Congratulations and best wishes in your future endeavors. However, in reading an "exit interview" with you, by Tim Alberta of Politico Magazine, I stumbled across what I believe to be a very important and dangerous blind spot in your thinking.

For decades, investors have feared the national debt growing to unsustainable levels and destroying the US economy. Back in 1981, the public debt of the federal government was $1 trillion; today it's more than $21 trillion. At some point, their theory goes, additional debt is going to be the fiscal straw that breaks the camel's back.

Asking if the Federal Reserve will lift the federal funds rate on June 13 is like asking if Las Vegas Golden Knights goalie Marc-Andre Fleury, who has stopped 94.7% of the shots against him in the 2018 Stanley Cup playoffs, will stop the next one. It's a virtual lock.

The US labor market has rarely been stronger. Recent figures from the Labor Department show US businesses had a total of 6.550 million job openings in March versus 6.585 million people who were unemployed. That's a gap of only 35,000 workers.

The bull market in U.S. stocks, which started on March 9, 2009, gets little respect. Those who have been bullish, and right, are mocked as "perma-bulls," while "perma-bears," who have been repeatedly wrong, are quoted endlessly.

The Federal Reserve held interest rates unchanged following today's meeting, but also left a few clues that they see economic activity and inflation heating up more than previously projected. A rate hike in June looks all but set in stone, and today's statement is consistent with two more rate hikes in the second half of the year, for a total of four hikes in 2018.

Just a few weeks ago, the Pouting Pundits of Pessimism were freaked out over the potential for the yield curve to invert. They've now completely reversed course and are freaked out over a 3% 10-year Treasury note yield.

From mid-2009 through early 2017, the US economy grew at a real average annual rate of 2.2%. Not a recession, but not robust growth either, which is why we called it a Plow Horse Economy.

When the report on international trade came out earlier this month, protectionists were up in arms. Through February, the US' merchandise (goods only, not services) trade deficit with the rest of the world was the largest for any two-month period on record. "Economic nationalists" from both sides of the political aisle, think this situation is unsustainable.

An entire generation of investors has been misled about interest rates: where they come from, what they mean, how they're determined.

One of the most important questions we have about our country's future is whether prosperity itself will make the American people lose sight of where that prosperity comes from; whether we'll forget to cultivate the attitudes about freedom, property rights, and hard work that have made not only us great but also all the other places that have followed the same path.

Stock market volatility scares people. But, volatility itself isn't necessarily bad. Only if there are fundamental economic problems, something that could cause a recession, would we think volatility itself is a warning sign.

In his first meeting as Chair of the Federal Reserve, Jerome Powell and company delivered what almost everyone had been expecting, a 25 basis point hike in the federal funds rate, and raised expectations for economic activity in the months and years ahead.

In the history of the NCAA Basketball Tournament, a 16th seed has never, ever, beaten a one seed...until this year. But, on Friday, the University of Maryland, Baltimore County (UMBC) beat the University of Virginia – not just a number one seed, but the top ranked team in the USA.

The current recovery started in June 2009, 105 months ago, making it the third longest recovery in U.S. history.

The US doesn't face "secular stagnation" caused by outside or uncontrollable forces, like foreigners (and bad trade deals), technology that steals jobs, or Unions that are too weak. Growth is slow because government has grown too big.

Forgive us our incredulity. The bond vigilantes were certain that as the Federal Reserve hiked short-term rates, long-term interest rates would barely budge, the yield curve would invert, and the economy would fall into recession.

On March 9, 2018, the bull market in U.S. stocks will celebrate its ninth anniversary. And, what we find most amazing is how few people truly understand it. To this day, in spite of massive increases in corporate earnings, many still think the market is one big "sugar high" – a bubble built on a sea of Quantitative Easing and government spending.

The U.S. economy continues to be lifted by an incredible wave of new technology. Fracking, 3-D printing, smartphones, apps, and the cloud have boosted productivity and profits. Yet taxes, regulation and spending all increased markedly in the past decade, raising the burden of government and dragging down the real GDP growth rate to a modest 2.2% from mid-2009 to early 2017.

Last year US stock markets experienced the least volatile year on record, hitting new highs seemingly every day. Then came the tax reform bill to end 2017, and a huge January with the S&P 500 rising 5.6%. Investors, especially individuals who finally became convinced that the rally would go on, piled in.

Back in the 1970s, supporters of the status quo said there was nothing to be done about stagflation (high inflation and slow growth). It was a "fact of life" that Americans had to accept after experiencing faster growth and lower inflation during the decades immediately following World War II.

In Janet Yellen's swan song as Chair of the Federal Reserve, she exited on a quiet note. The Federal Reserve did what just about everyone expected earlier today, keeping short-term interest rates unchanged while providing forward guidance that economic growth remains on track for further hikes in 2018.

You know the old saying about every cloud having a silver lining? Well, if you listen to some of the financial press, you'd think their motto was that clear skies are just clouds in disguise.

We've called the slow, plodding economic recovery from mid-2009 through early 2017 a Plow Horse. It wasn't a thoroughbred, but it wasn't going to keel over and die either. Growth trudged along at a sluggish – but steady - 2.1% average annual rate.

The stock market is on a tear. The S&P 500 rose 19.4% in 2017 excluding dividends, and is already up over 4% in 2018. It's not a bubble or a sugar high. Our capitalized profits model, says the broad U.S. stock market, is, and was, undervalued.

Bonds have been in a "bull market" for the past thirty-seven years. Not every quarter, or every month, but bond yields have fallen consistently since Paul Volcker ended the inflation of the 1970s.

One word that could describe Donald Trump's unexpected ascendancy to the presidency is – "revolt." Revolt against the "establishment." Revolt against the "status quo."

The Bible story of the virgin birth is at the center of much of the holiday cheer this time of year. The book of Luke tells us that Mary and Joseph traveled to Bethlehem because Caesar Augustus decreed a census should be taken. Mary gave birth after arriving in Bethlehem and placed baby Jesus in a manger because there was "no room for them in the inn."

Last December we wrote "we finally have more than just hope to believe that this year, 2017, is the year the Plow Horse Economy finally gets a spring in its step." We expected real GDP growth to accelerate from 2.0% in 2016 to "about 2.6%" in 2017.

The Federal Reserve did what just about everyone expected earlier today and raised short-term interest rates by 0.25 percentage points. The federal funds rate is now in a range from 1.25 - 1.50% and the Fed is now paying banks 1.50% on their reserve balances.

Models of the economy are pretty useful tools. And simple models are some of the most useful. They help people envision how the world works. They help organize thinking.

The Federal Reserve has a problem. At 4.1%, the jobless rate is already well below the 4.6% it thinks unemployment would/could/should average over the long run. We think the unemployment rate should get to 3.5% by the end of 2019 and wouldn't be shocked if it got that low in 2018, either.

Now that Black Friday has come and gone and Cyber Monday is upon us, you're going to hear a blizzard of numbers and reports about the US consumer. So far, these numbers show blowout on-line sales and a mild decline in foot traffic at brick-and-mortar stores.

We've called it a "Plow Horse" economy, which was our metaphor invented to counter forecasters who said slow growth meant a recession was on its way. A Plow Horse is always slow, but that slowness hides underlying strength – it was never going to slip and fall. Now, the economy is accelerating.

Are you an investor or a trader? Investors think long-term, while traders focus on short-term price movements.

Washington D.C. used to complain that Ronald Reagan employed a strategy of "starving the beast" – cutting taxes so that new spending was tough to legislate. Now, D.C. seems to employ the strategy of "gorging the beast" – spending so much that tax cuts are hard to pass.

The after effects of hurricanes Harvey, Irma, and Maria have done little to sway the opinion of Federal Reserve members that the economy is ready for further rate hikes. While leaving rates unchanged at today's meeting - as expected - they set the table for December.

The short-short list for new Fed Chair includes Janet Yellen, Fed Governor Jerome Powell and Stanford economist John Taylor, the author of the "Taylor Rule." Right now Jerome Powell – a former Wall Street executive at Dillon Reed – is the runaway favorite. Taylor and Yellen are a very distant second and third.

While tax cuts grab the headlines, the bigger issue for long-term economic growth is government spending. Tax receipts are above their long-term average as a share of GDP, but the government is still spending over $650 billion more than it takes in. And this government spending crowds out private sector growth.

Congress took a big step last week toward enacting some sort of tax cuts and tax reform. That big step was the US Senate passing a budget resolution creating the room for ten years of tax cuts totaling $1.5 trillion with a simple majority vote. This procedure means there is no need to break a filibuster by getting to 60 votes.

Next week, government statisticians will release the first estimate for third quarter real GDP growth. In spite of hurricanes, and continued negativity by conventional wisdom, we expect 2.8% growth.

If the current economic expansion lasts another year and a half, it'll be the longest on record, even surpassing the expansion of the 1990s that ended in early 2001.

Last week, at her press conference, Federal Reserve Chair, Janet Yellen said continued low inflation was a "mystery."

The big news today wasn't the Federal Reserve's decision to start gradually reducing its balance sheet in October. Almost everyone expected that. Instead, the big news was that twelve of the sixteen members of the Fed's interest-rate setting body – the Federal Open Market Committee – think the Fed will be raising interest rates by at least 25 basis points later this year.

No one expects the Federal Reserve to raise rates at the meeting this week. A rate change of any kind, either up or down, would be a complete stunner. Instead, the big news on monetary policy this week is very likely to be the Federal Reserve announcing it will begin gradually trimming its balance sheet at the start of October.

The Panic of 2008 was damaging in more ways than people think. Yes, there were dramatic losses for investors and homeowners, but these markets have recovered. What hasn't gone back to normal is the size and scope of Washington DC, especially the Federal Reserve. It's time for that to change.

The hits keep coming. Hurricane Harvey left destruction in its wake, and now, Hurricane Irma has Florida in its sights.

Think that title sounds familiar? It is. We've been here before. And, as before, the "debt ceiling" is a gold mine for some politicians, journalists and analysts. A possible government shutdown, or reaching a "hard" debt ceiling, are both fun for pessimists to talk about.

While the Sunday morning talk shows discuss the number of Civil War monuments that can dance on the head of a pin...and a rare Eclipse grabs focus...investors might be shocked at how the economy has accelerated.

The Trump administration took its first steps to address infrastructure Tuesday, with the president signing an executive order aiming to expedite environmental review and permitting processes. Some will decry the fact that these actions weren't accompanied by a multi trillion-dollar spending bill.

It's hard to read the business pages or watch the business news without seeing a story about the death of the consumer. In particular, the business press continues to be obsessed by relative weakness among traditional brick and mortar stores.

For many years now a relatively large contingent of analysts, investors and journalists has been convinced the stock market was in a bubble because the "Shiller P-E" ratio was just too high. Back on 8/12/2013, in our Monday Morning Outlook, we made our case that the Shiller model was too pessimistic. Now that looks like a pretty good call.

Yes, Friday's report of the Q2 real GDP growth rate was a little faster than average, but, with one exception, it remains the same Plow Horse it's been for the past eight years.

The Federal Reserve made no changes to interest rates today and made almost no changes to the text of its statement. However, the wording changes it did make strongly support our view the Fed will announce the start of balance sheet reductions at the end of its next meeting on September 20.

Since the start of the economic recovery in mid-2009, real GDP has grown at an average annual rate of 2.1%. The second quarter of this year doesn't look much different. Our calculations suggest real GDP grew at a 2.5% annual rate in Q2, exactly the same as the consensus forecast.

At eight years, the current economic recovery is the third longest on record. Personal income, consumer spending, household assets, and net worth, are all at record highs. Stock markets are at record highs. Corporate profits are within striking distance of their all-time highs. Federal tax receipts are at record highs.

Remember the weak May payroll report – just 138,000? Didn't think so. But, back then, that first report on May was reported as a massive economic slowdown that should stop the Fed from further rate hikes.

In March 2009, the stock market started its current bull run. At first, it was a V-shaped bounce from the 2008 Panic lows after mark-to-market accounting was changed.

The Federal Reserve just finished its annual round of large bank stress tests. The banks all passed – meaning they had enough capital to withstand a massive financial shock and deep recession.

Last week the Federal Reserve hiked the federal funds rate by ¼ of a percentage point for the fourth time since December 2015. The funds rate is still below the rate of inflation, which means the Fed is still a long way from becoming tight.

The Federal Reserve did what almost everyone expected today, raising the target range for the federal funds rate by 25 basis points to 1.00% - 1.25%.

When the Federal Reserve raises rates by another quarter percentage point on Wednesday, you're going to see many stories about monetary policy getting tight and the potential threat that poses for the economy in general and the bull market in stocks in particular.

With home prices recovering, builders will become more active and housing will follow the path of vehicle sales...with a lag, helped along by too much government.

Now that we're eight years into a bull market, some investors just assume something has to go wrong. As a result, we see lots of stories and get lots of questions about "bubbles," as in "what market or sector is in a bubble already?"

While some investors are freaking out about investigations, tweets, or the personality of President Trump, we are still watching policy.

News of the consumer's death has traveled fast.

We wish we had a dollar for every time we've heard that the bull market in equities is only due to loose money. We have consistently disagreed, arguing that although the Federal Reserve is loose, the bull market is primarily a function of the rebound in profits after the disaster in 2008-09.

The most important part of today's statement from the Federal Reserve is that it thinks the slow economic growth in the first quarter is temporary. As a result, the market consensus on the odds of a rate hike by June rose to about 94% after the meeting from about 67% beforehand.

Economic data is volatile. Weather, seasonal adjustments, calendar flukes, and measurement errors all affect the data. Nonetheless, those with a political axe to grind, or an economic forecast of recession or boom, will grab one piece of data and act as if they have discovered the Holy Grail.

When the French elected François Hollande as President in 2012, the global left rejoiced. Mr. Hollande ran on a platform of protecting workers from capitalism. He wanted to raise the top income tax rate to 75%. Analysts predicted a political turn to the left across Europe, if not beyond.

As we wrote three months ago, it's going to take much more than animal spirits to lift economic growth from the sluggish pace of the past several years. Measures of consumer and business confidence continue to perform much better than before the election.

Last Friday, payroll employment data, from a survey of businesses, showed the US created just 98,000 jobs in March. The consensus of forecasters had expected job growth of 175,000. The other jobs number, which comes from a survey of households, showed 472,000 new jobs in March.

If you read us regularly, and we hope you do, you know that we write each week about a topic we think is both important and timely. Last week, we were either clairvoyant, or extremely persuasive.

Well, that was fun! The GOP's attempt to reform healthcare hit a brick wall of politics. Conservative Republicans wanted to completely "repeal" Obamacare, while moderates and leaders were willing to keep much of it as long as it cost less. Moving one way or the other lost too many votes. Democrats refused to participate. So, the bill died.

The debate over healthcare reform is in full swing, with forces aligning on all sides. From our perch, House Speaker Paul Ryan's health care bill has some appeal.

Considering that the Federal Reserve raised short-term interest rates by a quarter point, today's Fed statement was surprisingly dovish.

If robots are supposed to take all our jobs, they're not very good at it. Nonfarm payrolls rose 235,000 in February, rising faster than even the computer models thought they would. This was the 84th month in a row of private sector job growth, the longest streak on record.

As Washington DC melts down, entrepreneurs keep moving, people keep working and spending; the economy keeps growing. The Federal Reserve keeps meeting and speaking, too, but now it appears they will actually act.

We think it was Art Laffer who said it best. Let's say the US invented a cure for cancer and China a cure for heart attacks. If China decided to ban the cure for cancer, should the US retaliate by banning the cure for heart attacks?

According to the futures market, there is a 38% chance the Federal Reserve raises rates when it meets in mid-March. If the Fed were to stand by what it has said the past several years, the odds should be much higher. But the market is used to the Fed finding reasons to put off justified rate hikes.

The biggest tax debate in Washington right now is not between Republicans and Democrats, but between Republicans and Republicans. Both sides of the debate seem to understand that the US tax code, particularly the fact that the US has the highest corporate tax rate of any industrialized country, is harming the competitiveness of US companies.

The US economy has grown at an average annual rate of only 2.1% since the recovery started in mid-2009, far slower than during the economic expansions of the 1980s and 1990s.

After hiking rates in December, the chances of another rate hike from today's meeting were close to nil. But where changes, mostly modest, were made to today's statement, they point to a more hawkish stance.

The past several years have made many investors complacent about inflation. That complacency served bond bulls well.

A memorable part of President Trump's inaugural speech pointed to mothers and children trapped in poverty, rusted-out factories, a flawed school system, and crime and gangs and drugs. He described these problems as "American carnage" and stated emphatically that it "stops right here and stops right now."

Animal spirits are back!

Keynes thought a free market economy should be managed: in fact, needed to be managed. His ideas flourished in the 1930s when the US was in the Great Depression. Keynes believed that a lack of consumer demand was the culprit to economic problems and government should spend to boost jobs and economic activity.

President-elect Trump wants a Race Horse Economy, not a continuation of the Plow Horse we've had for the past several years.

We have used the metaphor of the "Plow Horse" to define the US economy since 2009 – an economy driven by new technology and entrepreneurship (fracking, the cloud, smartphones, big data...), but held back by the friction of a growing and burdensome government.

The Bible story of the virgin birth is at the center of much of the holiday cheer this time of year. The book of Luke tells us that Mary and Joseph traveled to Bethlehem because Caesar Augustus decreed a census should be taken.

The Federal Reserve unanimously decided to raise rates in 2016 – finally! – by a quarter of a percentage point earlier today, as the markets expected. The federal funds rate is now set to hover between 0.50% and 0.75%.

Since the presidential election, the S&P 500 is up 8.4%, the Russell 2000, a small cap stock index, is up almost 20% and the Dow is closing in on 20,000. Financial stocks have surged.

If there's one theme tying together many of the policies President-Elect Trump and Congress will try to enact, it's making the US a better place to invest.

According to the Merriam-Webster dictionary, a Populist is, "a member of a political party claiming to represent the common people." The opposite of populist is elitist. We don't think Mr. Moore was calling President Reagan an elitist, so what was he saying?

We agree that higher tax rates, more regulation and increased government spending are wet blankets on economic growth. We also think these policies hurt the very people they're designed to help.

The S&P 500 hit a low of 666 on March 6, 2009 and was up 213%, excluding dividends, through November 4, 2016. Since then, the S&P 500 is up another 4.6%, and closed just 0.5% from a new all-time high last Friday.

Elections have consequences and the impact on U.S. economic policy of last week's election will be enormous.

As election results rolled in last night, Dow futures fell as much as 800 points. The knee jerk reaction was that a Trump victory was bad for the financial markets. We disagree. Mr. Trump has the opportunity to cut the burdens of government, which could turn the US economy from a plow horse back into a race horse.

In the movie "Saving Private Ryan," multiple brave soldiers give their lives to save one (the last-surviving of four brothers) in World War II. During a final, chaotic and riveting battle scene, Ryan is miraculously saved, but with tremendous loss of life.

Through Friday, in spite of very good earnings reports from companies, the S&P 500 was down nine days in a row, the longest negative streak since 1980.

The Federal Reserve has laid the foundation for a December rate hike.

It's not like we all don't know that certain media outlets favor certain candidates. Some outlets seem "more fair" than others, but some go to absurd lengths to spin the news.

Real GDP has been soft in the past year, growing only 1.3% in the year ending in the second quarter. In the four quarters before that, however, real GDP grew 3%.

Two weekend articles, in major US newspapers, left us shaking our heads. The Washington Post wrote that "economic growth actually kills people," while The Wall Street Journal published a piece saying, ironically, we should get used to slow growth - it's normal.

One of the key excuses for the Federal Reserve to hold off raising rates again and again, and to raise them very slowly, is that inflation remains extremely low.