Economic Policy InstituteVerified account

"There is a real possibility that the U.S. economy could slip into recession sometime in the next 18 months; this risk is due largely to excessive interest rate increases in recent years and a likely fading of fiscal stimulus." #NextRecession

"The Trump administration has proven neither nimble nor smart when it comes to macroeconomic management. ,Its attempt to dismantle many of the constraints put on financial sector speculation following the Great Recession is clearly a threat to future macroeconomic stability."

"A key lesson from the Great Recession is that fiscal policy is the most effective tool for aiding recovery. Monetary policy can lay the groundwork for fiscal policy, but really cannot be relied on to play more than a supporting role for fighting recessions.

"Contrary to conventional wisdom, the damaging failure to prepare for another downturn has nothing to do with an absence of fiscal or monetary 'space.' The U.S. economy has plenty of fiscal space to confront the next recession with substantial fiscal stimulus."

What will cause the #NextRecession? "Excessively contractionary monetary policy is likely the single most common cause of recessions in the post–World War II period."

"When the Federal Reserve thinks that growth in aggregate demand threatens to run ahead of growth in the economy’s productive capacity and spark accelerating inflation, it raises interest rates to keep the economy from 'overheating.'"

"A growing conventional wisdom holds the United States is poorly prepared to face the next recession because it lacks fiscal space to undertake stimulus, and lacks monetary space given short-term interest rates that are not very far above zero.

"The broader argument—that we have done a terrible job preparing for the next recession—is fair. The given reasons—a lack of fiscal and monetary space—are not.

"The evidence presented to justify claims of little fiscal space is usually just the federal debt as a proportion of GDP. This ratio in 2018 (77.8 percent) sat a bit over twice as high as it was before the Great Recession.

"But the measure is an extraordinarily imprecise gauge of fiscal space, and is fundamentally backward-looking, picking up the legacy of past decisions regarding spending and taxes.

"One of the most dispiriting features of the last recovery was how quickly the real cause of working families’ distress was cast aside and forgotten."