The Latest Fed Strategy Has Eerily Parallels to September 2007


Powell believes the market will continue growing at a moderate rate, yet the parallels should raise recession fears.

The current market and economic conditions in the U.S. strangely mirror the U.S. economy and stock market in September 2007, yet the Fed Chairman, Jerome Powell, claims that there will not be a recession anytime soon, according to Market Watch

Real GDP growth in the U.S. has been slowing since last year, and while the chair of the Federal Reserve has acknowledged this, the Fed forecasts continued positive growth with no risk of recession. However, the inverted yield curve warned that the economy was near its tipping point and stock markets continued to make new highs in July. The Fed cut rates on September 18.

The situation in September 2007 sounded familiar. The yield curve was inverted and economic growth was marked slower than in 2006. Standard & Poor’s 500 SPX made a new high in July 2007, there was an August correction -- just as there was in 2019 -- and the Fed cut rates on September 18. 

Reuters reported in November 2007 that the then Fed chair, Ben Bernanke, told a congressional committee: “Our assessment is for slower growth, but positive growth, going into next year.” The U.S. economy entered recession a month later. 

Jerome Powell, on September 6, said: “We’re not forecasting or expecting a recession. The most likely outlook is still moderate growth, a strong labor market and inflation continuing to move back up. Our main expectation is not at all that there will be a recession.”

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Economics, Finance and Investing