Should the Fed Worry About a Stagnant U.S. Economy?

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April 30 (Bloomberg) -- Brown University associate professor Gauti Eggertsson discusses the Federal Reserve’s approach to the U.S. economy on Bloomberg Television’s “Bloomberg Surveillance.”

A guy named krugman, bernanke, michael woodford.

I don't know anyone who had a trial by fire like you did against those three heavyweight.

How do you define stagnation and slot?

The question up until now has been about raising -- this might drag on for longer.

Indeed it may.

That is a lot of possibility.

You studied with michael woodward when heated interest and prices and no one reads it but everyone loves it.

As any modern economics and woodford's book or krugman's book?

Are we on original territory?

Do you mean the current situation we are facing now?

Is it a textbook meeting the fed has today or are they on original ground?

If we find ourselves in the situation for much longer it might pose challenges we did not anticipate in the book of woodford in 2003. we have some answers during that time with japan.

There were certainly solutions people provided at that time.

Perhaps it is time to take a closer look at those.

If we dig into the data ahead of the fed, we might get a sense for what they are going to say.

I will show two charts.

New polls from gary langer research, 20% of americans think the economy is getting better, not good.

36% say is getting worse.

Look at gdp, 4.1%, that sounds good, trailing gdp.

If you look over the past 50 years, it is way below trend.

Are we in a new, permanent slowdown?

This is nominal gdp, topline gdp that speaks to the disinflation, deflation question.

Professor eggertson, this is a crucial point right now.

Should janet yellen be worried about disinflation and what we see in europe -- deflation?

She should be concerned about it.

More concretely, we may not see renormalization anytime soon.

The discussion at the fed has been too focused on an exit as opposed to planning for this.

Remember, the last episodes we saw this kind in the u.s. was interest rates collapsing in -- you begin your new paper in 1938, is that what we are living?

Interest rates do not start rising again until 1947 after world war ii, when we saw a massive expansion in government due to the war effort.

It is a long period.

In japan, interest rates started falling in the mid-90's and are still at zero.

The assumption this will start improving one or two years out may not be warranted.

You what is said to be more active, you say it is passive and waiting for things to happen.

Hoping to create action through communication.

Is this a new paradigm for the central bank?

Maybe it is time for it to look at what ben bernanke said in 1999 when he was analyzing the bank of japan.

He suggested they may err on the upside and allow for access inflation, 3% 4% inflation.

At the beginning of the crisis people or putting these options on the table and people push them out, thinking they were not good options because they do not want to risk hard on credibility on inflation.

I was under the perception this would be a short run thing.

Maybe it is time to put other options -- seven years on.

Gautti eggertson with us.

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