The economic news that arrived as the Federal Reserve began its two-day meeting Tuesday suggests thatrose by 0.8 percent in August, easily beating expectations for a mere one-tenth of a percentage point growth. This was driven by growth in the economically sensitive parts of the monthly industrial production report, with manufacturing growing 0.9 percent and mining—which includes oil and gas drilling—growing 0.8 percent.were also strong, rising 0.1 percent.
. That’s right, a half-percent cut, in an economy running close to three percent growth with unemployment at historically low levels. This is the kind of thing the Fed excels at: a preemptive strike when there’s no visible slump, just a vague sense that one might appear on the horizon. In fairness, it’s a game they’ve played before, often with short-term success but longer-term regret.
In 1965, the U.S. economy was booming. GDP was growing at a sizzling 6.5 percent, and unemployment had dipped below 4.5 percent—essentially a textbook case of full employment. The inflation rate was a calm 1.6 percent, the perfect setting for the Fed to, well, do nothing. But central bankers hate standing idly by when they could be tinkering, and soAnd roll along it did, at least for a bit. The stock market responded enthusiastically, with the S&P 500 gaining 9.1 percent in 1965.
The stock market, true to form, threw a celebratory rally, with the S&P 500 gaining over 20 percent in 1967. But the party didn’t last long. By the end of 1968, inflation had surged to 4.7 percent, forcing the Fed to raise rates and tighten credit to contain the spiraling price increases. By 1969, inflation had reached a painful 5.4 percent, GDP growth had slowed, andSkip ahead to 1998, and we find the U.S.
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