September 12, 2017

The DWL Cycle

Deepest (contraction) Weakest (recovery) and (soon to become) Longest (expansion). There are some interesting features to the DWL cycle. As the chart below indicates, the DWL cycle started off very mild, being one of the mildest three quarters into the recession. Then, when many of the other cycles were beginning their expansion phase, the DWL cycle turned markedly “south”. Why? That´s the moment the Fed, having tightened monetary policy on account of a misguided worry about headline inflation, which was being buffeted by the ongoing oil shock, decided to “micromanage” the economy by providing “rescue services”, mostly to the financial…...

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