Ecoinometrics - Rate of change

Too much, too fast...

If you remember your high school lessons of physics you know that the force of an object is the product of its mass by its acceleration.

That is the heavier an object is and the faster it is coming at you the harder it will smack you on the head.

Finance isn't a hard science. But there is kind of similar principle you can apply to the economy. When you try to gauge what impact some change is going to have you need to consider not only the magnitude of the change but also how fast that changed happened. 

The combination of the two is what matters.

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Rate of change

People still doubt that the US will experience a bad recession in the coming 12-24 months. 

They think the Fed can still pivot in time. They think the economy is strong. They believe in the dream of a softish landing. 

I don't.

The main reason I don't is because of the rate at which the Fed is tightening liquidity.

If you don't pay attention to the details you might just look at the effective Fed Funds rate at 2.7% and shrug it off as not being so high historically speaking. 

It is true that the last time inflation was at 8%+ the Fed Funds rate was between 8% and 10%. So what's the big deal?

The rate at which this change is happening is the big deal.