Slowdown could have been avoidedIt's great that a "well-respected economist" can look back and tell us what went wrong. It's better if those well-respected economists can look forward and tell us what is going to go wrong.
A well-respected economist says the U.S. is now in a recession...and that Congress and the Federal Reserve could have stopped it.
By Chris Isidore, CNNMoney.com senior writer
Last Updated: March 20, 2008: 4:31 PM EDT
NEW YORK (CNNMoney.com) -- Congress and the Federal Reserve missed their chance to keep the country from falling into recession by acting too slowly, according to a well-respected economist.
Lakshman Achuthan, the managing director of the Economic Cycle Research Institute, said the economy has now fallen into what he calls "a recession of choice."
He argues that the economic stimulus package passed by Congress this year is too late to help many consumers and businesses and that the Federal Reserve was too timid when it started trimming interest rates last fall.
From Sept. 11, 2007 post - Federal Reserve Watching
I have been critical of the Federal Reserve actions for some time now [do a simple blog search on "Federal Reserve"], but one needs to realize that the statistical process by which the Fed gets economic data is always subject to revision.Of course, the Fed did finally try to correct the situation, but it waited far too long.
That doesn't mean that the Fed was correct in raising the funds rate to 5.25%... it wasn't. It only means that the overall process has flaws guaranteeing it will be slow in responding to changes in the economy... and tend to over-react as a result.
The Fed caused the housing mess by making money too cheap and then caused the housing crash by making money too expensive. But one has to wonder how the Fed really uses the information it has available... and why. The whipsaw effect of Fed actions has to make one wonder.
You might expect the Fed to try to correct the situation, but don't hold your breath either.