While we have heard from both sides of the economic pendulum, with some adamant that the U.S. economy is destined for recession and others, albeit a minority, equally committed to soft-landing scenarios, the reality is that we don’t know what we don’t know, yet. Only data can solve this difference of opinion, which generally matriculates out in a lagged fashion, with fewer, real-time indicators useful enough to sway the most ardent of detractors. While the jury is still out regarding the ultimate destination of domestic economic activity, we are starting to see some of the fallout of monetary policy excesses during the Great Financial Crisis (GFC) of 2008 and the sluggish FOMC response to inflationary pressures of the post-COVID era. To recap, the inexplicably reckless policies of the Federal Reserve post the GFC, in part, landed us where we are today – a near-zero Federal Funds rate for over 8 years and an equally misguided Quantitative Easing (QE) program, where the Federal Reserve crowded out private investors and scarfed up much of the mortgage-backed security (MBS) production backstopped by the U.S. government, which served to artificially depress market rates and encourage more leverage in the housing and financial markets.
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