This week we are celebrating the fact the US economy has entered its ninth year of growth, which has allowed for GDP to expand 12 percentage points above pre-crisis levels and for the creation of 16 million jobs. “An extraordinary long recovery, given that expansion periods in the US have on average lasted 5.5 years. It was only in the 1960s and the 1990s that the recovery was longer.,” says José Ramón Díez Guijarro from Bankia Estudios.
It’s difficult to find reasons to explain the duration of cyclical expansive phases because, practically, one is not like the either. As far as the current one goes, the analysis is, if it’s possible, even more complex, bearing in mind the characteristics of the last crisis and its impact on potential growth. It’s obvious that the combination of economic policy strategies and, above all, the macro-prudent focus of many measures which have avoided excessive gearing during this cycle, have had something to do with it. That said, these improvements in regulation and supervision seem to be under threat, like a lot of other things, from the new US administration.
So, the US economy is immersed in a soft recovery cycle which, in return, could last over 10 years, clocking up a new record. At this stage the doubt surrounding an atypical recovery is whether the best thing is for the Fed to maintain its monetary policy of the last few months and continue to gradually raise interest rates, despite the absence of inflationary pressures. Or, on the contrary, whether it should stop this process until the red button of inflation starts flashing.
As a reminder, during the last four expansive cycles, rates rose on average a total of 375 basis points (75 basis points currently), starting from an average minimum level of 4% (0,25% currently). But of course these were other times and another economy. Whatsmore, according to Díez Guijarro, the debate “is complicated”:
It includes issues like the increase in inequality in the country which, according to the harshest critics, is getting worse because a monetary policy which doesn’t favour different sections of the population in the same way has been maintained for too long a time.
Bernanke’s intervention last week in Sintra (When growth is not enough) alluded precisely to this kind of problems. While acknowledging the successes of the US recovery, he was self-critical about the delay on the part of the economic authorities in recognising the disruptive trends which the recovery process means for large segments of the population this time round. According to the former FED chairman, the number of Americans who have expressed their disappointment with how the economy is going, practically doubles the number who are satisified, at a time when the US is close to full employment. The reasons for this are as follows: salaries which have stagnated in real terms for a large part of the population, the breakdown of the ‘social lift’, a lack of confidence in the institutions and disfunctional behaviour from segments of the society badly hit by the crisis.