Bernanke Says U.S. Economy Faces a ‘Wile E. Coyote’ Moment in 2020
The combination of tax repatriation, tax cuts, and large-scale deficit spending (fiscal expansion) late in the economic cycle (recessions typically happen every 8 years or so, and the current expansion has been going on for ~10 yrs now) while the Federal reserve is raising interest rates (monetary &#x27;contraction&#x27;) is more or less unprecedented (we&#x27;ve never seen it happen in modern times in the US or any other large developed economy).<p>The risk is that fiscal policy is pouring more fuel on the fire at the precise time when the economy typically starts slowing, further inflating asset bubbles and making the Fed&#x27;s job (to avoid inflation and keep employment high) much potentially harder and making it more likely a misstep will happen.<p>Popping bubbles or slowing their formation is inherently a tricky proposition (just look at the run-up in stocks from early 2017 until now); move too aggressively and you risk sparking a liquidity crisis and plunging your economy directly into recession; move too slowly and you end up with an even larger bubble later on to deal with.<p>This is tricky in normal times, but doing so while the other wing of government is actively stimulating the economy makes it <i>much</i> harder to gauge the impact of monetary policy and withdraw Fed support in a prudent and measured way.