Fed's Yellen Says Recession to be Deeper than Garden Variety Recession

In a speech today, Janet L. Yellen the President of the Federal Reserve Bank of San Francisco said that this recession is likely to be deeper than a typical, "garden variety" downturn.

In a speech today, Janet L. Yellen the President of the Federal Reserve Bank of San Francisco said that this recession is likely to be deeper than a typical, "garden variety" downturn.

She states:

"I agree with Marty that the current downturn is likely to be far longer and deeper than the "garden-variety" recession in which GDP bounces back quickly. As Marty points out, a defining characteristic of this downturn is its cause. Typically, recessions occur when monetary policy is tightened to subdue the inflationary pressures that emerge during a boom. This time, the cause was the eruption of a severe financial crisis. Cross-country evidence suggests that, following such an event, GDP remains subdued for an extended period.2 And consistent with this evidence, many forecasters expect this to be one of the longest and deepest recessions since the Great Depression."

That's pretty sobering.  If we look at a graph of how this market downturn compares to the Great Depression than we still have quite a ways to go.  Note that the graph was created several months ago before the large market rally.

The bottom line, be careful about the newfound optimism in the stock market.  We are far from out of this despite the pundits on CNBC declaring the dawn of a new Bull market.

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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