Yes, The Fed's Target Is Now Too High. Why Do You Ask?

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by: Brad DeLong
Summary

Even though the first quarter of 2019 is only two-thirds over, practically all of the private-sector decisions that will determine the level of economic growth from the first quarter of 2018 to the first quarter of 2019 have already been made.

Moreover, because of a statistical quirk, 8/9 of the components of the growth rate have already occurred, and we have reasonable data on 2/3 of the components.

It's not a recession. Not quite.

Even though the first quarter of 2019 is only two-thirds over, practically all of the private-sector decisions that will determine the level of economic growth from the first quarter of 2018 to the first quarter of 2019 have already been made. Moreover, because of a statistical quirk, 8/9 of the components of the growth rate have already occurred, and we have reasonable data on 2/3 of the components. So the Federal Reserve Bank of New York's forecast that the first-quarter growth rate will be only 0.9% is now a semi-solid thing: you cannot take it to the bank, but you can borrow on it (the last three month out misses were 0, +0.2, and -0.4 respectively):

Nowcasting Report FEDERAL RESERVE BANK of NEW YORK

It's not a recession. Not quite. But it is clear that even if 2.4% was the right target for the short safe nominal interest rate two months ago, it is not the right target for the short safe nominal interest rate now. The Fed should cut.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.