As I reported at the end of Tuesday’s Forecasts & Trends, our current economic recovery is the longest in US history. The National Bureau of Economic Research (NBER) – the arbiter of when economic recoveries begin and end – reported last week that we are now in the longest economic recovery on record. July marks the 121st month of the current recovery, surpassing the previous longest of 120 months from March 1991 to March 2001.

The NBER says the current economic recovery began in June 2009, following the Great Recession and financial crisis of late 2007 to early 2009 — when stocks lost over 50% of their value as measured by the S&P 500 Index. It was the worst economic downturn since the Great Depression.

While we should be elated that this is the longest economic recovery in US history, we should also be aware that this is NOT the strongest expansion by a longshot, as measured by real Gross Domestic Product growth. According to the NBER, the economic expansions of the 1960s, the 1980s, and the 1990s were all stronger than the current recovery in terms of GDP growth.

U.S. Real Gross Domestic Product

(Click on image to enlarge)

Source: Federal Reserve Bank of St. Louis, Commerce Department (shaded areas represent recessions)

The NBER says that the current economic expansion (again, beginning in June 2009) has seen total real GDP growth of only 24.5% through the end of May. That compares to growth of 51.7% in the 1960s expansion and 42.4% in the 1990s recovery. Even if this expansion lasts another year or two, it would not equal those earlier achievements.

The question is, why? To get a sense of why this expansion has been so weak, we must think back to the dire situation preceding June 2009. Policymakers in most of the advanced world had thrown everything they had at the meltdown of the world financial system and the stomach-churning downturn in many formerly prosperous economies.

Governments ramped up spending and cut taxes. Central banks slashed interest rates and bought unheard of quantities of bonds in a process known as “Quantitative Easing” or QE. Banks were rescued, and the regulatory rules were rewritten.

Given the fact that the financial crisis was so severe, it virtually assured that the recovery would be weaker than those following milder prior recessions. Few economists and forecasters predicted this at the time.

The good news is that it looks like this expansion can continue at least a couple more years. While the 3.1% GDP growth we had in the 1Q does not appear to be sustainable, most forecasters are now predicting growth of 2% or less going forward. A recession this year or next looks unlikely – assuming the (arguably) inverted yield curve doesn’t worsen significantly and barring any major negative surprises.

Fed’s Powell: Case Could Be Made For Lower Interest Rates

Fed Chairman Jerome Powell delivered his required semi-annual monetary report to the House of Representatives yesterday and is appearing before the Senate today. In his prepared remarks, Mr. Powell stated that the US economy performed “reasonably well” in the first half of this year.

Yet he also cautioned that “uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook.”

He also expressed concerns that “growth in business investment seems to have slowed notably”, possibly due to growing trade tensions between the US and China.

In addition, Powell pointed out that inflation continues to run below the Fed’s stated target of 2%, as measured by the core PCE Index.

In light of these concerns, Powell suggested that a case could be made for lower interest rates. However, when questioned, the chairman did not commit to lowering the Fed Funds rate (currently 2.25%-2.50%) just ahead. But he did not rule it out, either.

Powell repeated comments he made earlier this year that the Fed will continue to act “as appropriate to sustain the [economic] expansion.” While he did not hint, or otherwise suggest, that a rate cut will be coming at the upcoming FOMC meeting on July 30-31, I would have to say he at least left the door open.

Aside from Mr. Powell’s prepared remarks and his answers to questions, there were two things I found unusual about this particular appearance before Congress. First, the Fed chose to release Powell’s prepared remarks to the media well before he began his testimony. Normally, his prepared remarks are not released until after he begins speaking.

Not long after his remarks were released, the media concluded that Powell’s speech would have a decidedly “dovish” tone, and stocks rallied ahead of his actual testimony.

Second, while the chairman was speaking, Fed Funds futures showed significantly increased odds of a 50-basis point (0.5%) rate cut at the upcoming July FOMC meeting. The odds increased from 30% to 50%! I still very much doubt that will happen.

In summary, while Chairman Powell did not commit to a rate cut at the end of this month, he seemed to be leaning in that direction. While I (and others) still do not believe the economy needs a rate cut at this point, the Fed may do it anyway. We’ll see.