Research by the Fed suggests there was serious supply chain disruption in the US economy from the Japanese tsunami and a consequent sharp fall in vehicle and other forms of industrial production. From this, the Fed has surmised that confidence will soon return, and therefore diagnoses little immediate risk of a double-dip recession.
There’s a reasonable chance this analysis is correct, but if there is one thing we have learnt from the crisis of the past four years, it is that once the economy starts tumbling, it’s very hard to stop. Once again, it seems to be sliding towards the cliff edge.
What’s more, the harsh truth is that policymakers have very limited scope for doing anything about it this time around. Both in terms of fiscal and monetary stimulus, they’ve pretty much shot their bolt – there’s nothing left in either cannon to fire at a renewed downturn.
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