Everyone wants to know where the economy is heading.  Some market players are literally screaming in the back of their heads for a pronouncement.  We want it in print.  We want the headline to read, "The Fed has achieved a Soft Landing.  It's all downhill from here."

I'm going to put it in print.  We haven't landed and we won't.  I believe that fiscal policy in the American Economic Experiment will remain a fragile balance until the dawn of the post technology era or the consolidation of geopolitical powers.

The world is a much smaller playground than it was in the days when economic growth and inflation moved in unison.  In today's market jobs are extremely mobile.  As a primarily service based economy, unemployment is more so a function of consumer confidence than the willingness of a family to move from a closed down factory in Detroit to a new factory in Allentown, PA.  Our service jobs are largely technologically enabled allowing employees to work over long distances with great efficiency.  It's these fundamental changes that highlight the discussion of "Full Employment" as arbitrary and diminish the relationship between inflation and economic growth. 

Today technological advancements not only allow for a painless migration of the workforce, but they also allow for the globalization of trade.  Have you been asked to diversify abroad or invest in emerging markets?  While American's invest elsewhere, foreign powers invest in our securities.  China and Japan are major players in our bond market.  China owns over 1 trillion dollars in U.S. backed securities.  That's 1/4 of all outstanding U.S. bonds.  Such foreign investment helps to stabilize our markets in times when past experience would indicate that interest rates should significantly rise with the overnight lending rate, negative or negligeable national savings and when the U.S. Government is thought to be over-extended and buried in debt. 

Until there is a fundamental change in the economic or political climate of the world, traditional indicators will give false signals.  I believe the economy over the next several years will continuously appear as though it is teetering on a symbolic needle representing "run-away inflation."  The Fed will have to be eternally vigilant and ask itself if rate hikes are causal and if new relationships need be drawn between inflation and economic growth.

*As any economist..........I reserve the right to change my mind on a daily basis.  I reserve the right to be only slightly more accurate than the weather forecast.  (know that of the 109 economists surveyed by Bloomburg prior to the FOMC meeting today, the only thing they could agree on, was that the fed would not hike rates at 2:00 that day.)  I also reserve the right to stardom should I hit the nail on the head.

For my various other forecasts, please click on the forcast tag on the right hand side of this page.