A year ago, one day before Federal Reserve Bank of Philadelphia president and CEO Charles Plosser addressed the 30th annual Simon Graduate School of Business economic seminar in Rochester, investors saw nearly 9 percent of the stock market’s total value erased. It was among the largest single-day declines ever.
The trigger was the National Bureau of Economic Research’s announcement that the economy officially was in recession-and in fact had been since December 2007.
It already was one of the longest recessions since the Great Depression, and Mr. Plosser was not cheery. "Neither consumers nor businesses have much confidence in the prospects for the economy in the near term," he said.
In retrospect, that seems if anything a bit of an understatement.
Yet Mr. Plosser’s longer-term view was not drenched in pessimism. He thought clear signs of growth would emerge, just not until the second half of 2009.
And, in fact, that’s what happened.
The former Simon School dean returned to Rochester again this week to speak at the school’s 31st annual economic seminar. In his view, the economy now is recovering, and growth will be sustainable "even as fiscal and monetary stimulus programs begin to wind down."
Indeed, he spent a good deal of time talking about the need to be on guard against inflation spurred by excessive stimulus.
He noted that hockey great Wayne Gretzky once explained his success on the ice by saying, "I skate to where the puck is going to be, not to where it has been."
Added Mr. Plosser: "I believe monetary policymakers can better achieve their goals, too, if they follow the Gretzky strategy."
His point is an important one-and not simply for monetary policymakers. With reductions in the jobless rate lagging economic growth, as nearly always happens, pressure for more fiscal stimulus will continue. However, such action likely would be ill-timed.
There’s an important message here for business as well. Companies that outperform the competition in the expansions following recessions typically are the ones that could clearly see the better days ahead.
The rest find themselves behind the curve, looking only at a long struggle to catch up.
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