Economists at High Frequency Economics (HFE) forecast a dire outlook for Japan and Euroland but a better economic outlook for the U.S. On a Sept. 10 conference call, Chief Economist Dr. Carl B. Weinberg stated in very strong terms that the economic outlook for different regions will vary greatly according to how strong or weak each country or region’s economic stimulus has been. It is a “policy driven” difference, Weinberg said. In particular he pointed to Japan and Euroland as places that will now enter a depression, as even though the recession may be abating, the economic contraction has been so severe and so fast that those economies will suffer a “prolonged” period of “three years to a decade,” of “depressed economic activity.”
Dr. Ian Shepherdson, Chief U.S. Economist at HFE, had a rosier outlook for the U.S. He says that although he has been “miserable for the best part of the last four years,” he is now “significantly more cheerful” about the prospects for recovery in the U.S. He credits the “massive” regulatory response of the U.S. government for staving off for this country the depression his colleague projects for Japan and Europe as a result of their much more meager stimulus and regulatory response to the crisis.
While there is a view that the massive U.S. stimulus program could generate a wild inflationary spike, Shepherdson is not worried about inflation. Calling himself an “inflation optimist,” he noted that he “wouldn’t rule out…a bout of modest deflation,” but added that he doesn’t expect nominal wages to fall. He says that we are in the U.S., “a million miles away from inflation lurking around the corner.”
Shepherdson went on to say that a “post Lehman catastrophe has been diverted by policy.” Deleveraging is underway in the U.S., “assisted by policy.” This deleveraging is good over the long term, although the consumer is constrained from spending because they “don’t have access to credit and labor income, so consumer spending is not growing.” Comparing the U.S. economy going forward to one that is starting to recover “after a war,” it’s Shepherd’s view that the consumer will be “leaner, smaller,” and because consumption is such a large part of the U.S. economy, it will grow in a “somewhat constrained way.”
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His longer-term forecast is for stronger growth for 2012 to 2015, with “low inflation and gradual tightening,” by the Fed. He’s not worried about the Fed tightening very much shorter term, though: “Even modest tightening by the end of next year is unlikely”