The recession is already upon us. And to add insult to injury, it’s going to get worse before it gets better.
But it will get better, relatively quickly. And the economic boom period will continue for the next 20 years, according to Brian Wesbury, the chief economist for Griffin, Kubik, Stephens & Thompson, a Chicago-based investment bank specializing in fixed-income securities.
Wesbury made his remarks to an overflow crowd of more than 200 people Jan. 10 at Boder’s on the River, Mequon. Ozaukee Bank sponsored the event.
Numerous indicators point to the current recessionary period that should last through the first two quarters of 2001. The good news, Wesbury said, is that it should be a fairly shallow recession, and the economy will turn around in late summer to early fall. One of the reasons for the quick turnaround is the speed in which markets and investors react to monetary policy in the new economy.
"The decline in the stock market is a reflection of the slowdown in the economy," Wesbury said. "It is not the cause, as some others have stated.
He levels the blame squarely on the shoulders of the Federal Reserve’s monetary policy, which sought to put the brakes on the economy by increasing its rates last year.
"The economy is slowing because the Federal Reserve made a mistake," Wesbury said.
Wesbury has been a critic of the models the Fed uses to dictate monetary policy and has noted his differences for several years in the Wall Street Journal. He is highly regarded by financial professionals, being named "Chicago’s most prominent New Era Economist" by the Chicago Tribune in 1998. That same year the Wall Street Journal ranked him as the third most accurate US economic forecaster. In addition, he is regularly featured on CNN and CNBC.
What will snap the US out of the recession?
According to Wesbury, more cuts in the Fed’s rate – he’s predicting another point by mid-year, with an additional reduction of one-quarter point by year end – and broad-based tax cuts as proposed by President-elect George W. Bush.
He warns, however, that tax cuts – especially those that are phased in over a period of years, as the Bush plan proposes – weaken the economy before strengthening it. One partial solution is to change withholding tables immediately after a tax cut is passed, providing workers with more take-home pay. He predicts a tax cut will go through as soon as May.
