Will solid and sustainable growth return?


Experienced member
Fed's Guynn: Economy `Barely Growing At All Right Now`

NEW YORK -(Dow Jones)- Though the U.S. economy is barely growing at the moment, technological improvements and low inflation provide the foundation for a quick recovery, Federal Reserve Bank of Atlanta President Jack Guynn said Wednesday.
But he also cautioned against counting too much on monetary policy to boost economic growth or stock prices, and that unless current equity movements threaten the financial system like they did in 1987, they're no more or less important than other economic trends the Fed considers.

In prepared remarks to the Gwinnett County Council for Quality Growth in Georgia, Guynn noted that "the economy is barely growing at all right now" and that first quarter gross domestic product growth won't be much more than the 1% gain in the final quarter of 2000.

He also observed that thanks to technology-driven productivity gains, the economy adjusts more quickly to slowdowns. Those productivity improvements " might not have been able to prevent a slowdown, but they should help deliver us from it much more quickly," he added.

Guynn also pointed out that in the latter part of the 1990s, the economy benefited from some "extraordinary" developments that likely won't be repeated anytime soon. He cited the sharp decline in energy prices in 1997 and 1998, which kept inflation low and boosted household and business balance sheets, fueling greater consumption. In addition, weak overseas economies in the late '90s made the U.S. the "safe haven of choice" for global investors.

Nevertheless, the impressive economic gains from that period weren't all temporary, and Guynn does think productivity "is and will remain substantially higher than it was prior to 1997 and that the economy is capable of sustaining over 3% GDP growth without risking an outbreak of inflation."

And given the solid fundamentals of low unemployment and inflation, "I'm optimistic that solid and sustainable growth will return," Guynn added.

But the Fed shouldn't be counted on too much to bring growth back to those higher levels, the Atlanta Fed chief suggested.

Guynn noted that one thing monetary policy can't do is "generate economic output" and that while good central bank policy is "essential" for growth, "it is not sufficient."

He also warned against looking to the Fed to base policy decisions solely on movements in the stock market. In recent weeks, volatile, and mostly negative, movements in equity markets have at times fueled speculation that the Fed would take more drastic policy action in order to boost investor sentiment.

"Monetary policy is not the tail that wags the bull - or the bear, for that matter," Guynn said, explaining that "stock prices are ultimately determined by the fundamentals of the overall economy - and not the other way around."

Guynn added that "in my view, it is not the place of monetary policymakers to target stock prices" and that "unless the current adjustment begins to threaten the ability of the financial system to operate (as was the case in 1987), it can be no more (or less) consequential to monetary policymakers than any other economic adjustments."

Guynn isn't a voting member in 2001 of the Fed's policy arm, the Federal Open Market Committee, which meets next on May 15.

-By Brian Blackstone; Dow Jones Newswires; 201-938-4156; brian.blackstone@ dowjones.com

Nice one mate....exactly what I was referrring to in my market crash reply. Thanks for putting it up for all to see. The fact that it is unlikely that the fed will bail investors out is, IMHO good. It will stop the hype stories. People will need to wake up and smell the coffee. It may force peoples hands, driving things lower to the true bottom, whatever that means. From there we can rebuild.....

Its like my everyday job. If a part of the body is bad, making the whole patient ill, then in crude terms it has to be removed. There is then a period of pain and healing, then rehabilitation. The same in the market - all the hype, false expectations need to be cut off, leaving a stable scenario. The pain of the losses will heal, and confidence will return like someone learning to walk once more....

(Tried not to be too graphic!!!)

Things will get worse before they get better, but then we all know that anyway.

Exactly right, Mark...

The whole point of posting this is what I've been saying for a while...in the process of basing and building a bottom we'll witness crazy bounces both up and down...the up bounces will never mean sustained recovery untils the basing and building is over...the Fed decisions is a major factor causing the up bounces in this process...so wanted to draw attention to how far they can heal the wound...just read your comments in the other thread as well...most sensible...

So patience is still the word...