Our Outlook for the US Economy

QUARTERLY OUTLOOK: Even as some fret about Fed actions behind the curtain, the US economy is finding its own strength

Robert Johnson, CFA 27 June, 2013 | 10:59AM
  • The roots of the US and world economic recoveries go well beyond a loose Federal Reserve.
  • Oil, housing, advanced manufacturing, improved balance sheets and laboUr flexibility will drive the US economy.
  • A weaker China, a tougher Fed and a tightening US federal fiscal policy will keep a lid on short-term economic activity, but don't be fooled: The long-term fundamentals are strong.

 

The famous book and movie The Wizard of Oz bears a lot of similarity to the relationship between the US economy and the US Federal Reserve. In the story, the Wizard hides behind a curtain and manipulates a bunch of levers to produce a lot of scary images and sounds that thoroughly frighten the citizens of Oz. The people are convinced of the Wizard's powers, both good and bad, to change their world.

Although the Fed has certainly tried to be transparent about its manoeuvres, it indeed still hides behind a curtain and is still thought to be all-powerful. The Fed's behind-the-scenes manoeuvres remain less than well understood by the people, who still shake in fear every time the Federal Reserve chairman pulls a lever.

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About Author

Robert Johnson, CFA  is director of economic analysis with Morningstar.

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