History shows that the full impact of monetary stimulus is felt in the economy after 12/15 months, and that the maximum effect is felt 18 months following rate cuts.
We are over that 18 month period now, and thus, under a scenario of stable rates going forward, should expect inflationary pressures to subdue.
(A convincing counter argument could be made that the upswing in the general economy following Greenspans rate cuts of 2001 have taken longer to impact the general economy than in previous cycles, and thus the impact of inflationary expectations has also 'shifted' out 12 months as a result)
We could both endlessly debate the reasons for/against the likelyhood of growth accelerating the the USA over the next 12/24 months, however, just accepting my argument of the USA entering a recession over the next 12 months could you please endeavour to answer my simple question below:
If the USA were to enter into another recession in the near future what stimulatory policies could the Fed or Government introduce, considering the limitations of:
1. Tha USA's current record CAD (approaching 5% of GDP), and massive budget deficits, and
2. America's already record low Fed fund rate of 1.75% (considering the existance of a natural floor at 0%)
What are the options?
The Fed and Govt are CHECK MATE, just like Japan has been over the last decade.
