Since 1945, the average economic expansion has lasted almost five years (about 60 months), according to the National Bureau of Economic Research. With the current expansion being about 40 months old, some might consider it to be young. But that ignores the reason growth has been slow.
Looking back further in history, the average expansion only lasted 27 months in the period from 1854, when the first records became available, to 1919, when the Federal Reserve began managing the money supply to influence the pace of economic growth.
If we consider longer periods of growth to be a measure of success, the Fed has been effective and the nation has enjoyed longer expansions. Recessions have also been shorter, averaging 11 months, or half the average time seen in the pre-Fed days.
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The question now is whether or not the Fed is still as effective as it once was. If the Fed has lost some of its ability to influence the economy, the business cycle should be more like it was in the 1800s than it was in the late-1900s.
Evidence of the Fed’s waning power is found in the fact that increasing amounts of stimulus have led to smaller gains in growth. If that is the case, then history suggests a recession is more than a year overdue.
The current expansion is old under the standards seen in the pre-Fed days, which seems like the better model. Trillions in stimulus have created hundreds of billions in economic activity. The excess money may be creating inflation, but it is not creating growth.
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