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Bob Carey
Chief Market Strategist
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  Takes More And More Stimulus To Move An Economy This Big
Posted Under: Conceptual Investing
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View from the Observation Deck
  1. The Federal Reserve dropped its federal funds target rate aggressively from 5.25% to 0-0.25% to help stimulate economic activity in the last recession (12/07-6/09).
  2. In the past, it was not uncommon for the U.S. to exit recessionary periods by posting robust GDP growth rates of 4-6%, well above the 2.1% annualized growth rate in this recovery.  
  3. Today, the U.S. economy (GDP) carries a nominal dollar value in excess of $15 trillion, approximately 3x the size it was 20 years ago.
  4. Events such as the 9/11 attacks, fighting multiple wars simultaneously, geopolitics and globalization have greatly influenced the U.S's ability to bounce back as quickly as it once did. 
  5. The Fed has kept its benchmark rate at 0-0.25% for 41 months. In addition, it increased the size of its balance sheet by over $2 trillion via its quantitative easing initiatives.
  6. That is a tremendous amount of easing, as evidenced by the -2.0% real rate of return posture referenced in the chart. That rate was recently -3.0%, before the price of oil dropped 20%.
  7. We believe that investors should be cognizant of the potential for higher inflation and interest rates at some point in the future due to extraordinary levels of stimulus in the system.
Posted on Friday, June 8, 2012 @ 4:05 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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