NCPA - National Center for Policy Analysis

Economic Recovery in Sight

January 7, 2002

No two recessions are the same. Indeed, it is likely that the economic recovery this time will be much more robust than after the last recession's trough in March 1991. That recovery was so lackluster that on Election Day 1992 many Americans thought the country was still in a recession, even though it was technically long over.

The biggest difference between now and then is that Fed policy was much tighter in 1990 than in 2001 (see figure).

  • In July 1990, when the recession started, the federal funds interest rate was 8.25 percent, even after 6 rounds of rate cuts -- starving the economy for liquidity and causing very high market interest rates.
  • Interest rates on even the highest quality corporate bonds were near 10 percent.
  • In March 2001, when the current recession began, the fed funds rate was at 5.5 percent and corporate bond rates were around 7 percent.

The Fed has also eased monetary policy much more aggressively this time. Another difference is that in 1990, the first President Bush foolishly retracted his no-new-taxes pledge and signed legislation raising the top tax rate from 28 percent to 31 percent.

Today, by contrast, tax rates are slowly coming down. And people have much more faith that this President Bush will not raise taxes.

Indeed, many economists believe this recession may already be over. There are indications the economy bottomed in the 4th quarter and will be growing smartly by the 2nd quarter of 2002. With initial claims for unemployment already down by 100,000 in just 4 weeks, we may have even seen the unemployment rate peak.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, January 7, 2002.


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