Third Quarter Outlook

Please consider the Hoisington Quarterly Review and Outlook for the third quarter of 2020.

Lacy Hunt starts off with conditions central banks must meet to stimulate the economy.

Four Conditions

The Fed must be able to control the  monetary base by increasing its liabilities

The Fed's power to stimulate economic conditions is a stable relationship between the monetary base and the money supply, M2.

The velocity of money (V) must be stable, although not constant. If V is stable, then changes in M2 will control swings in nominal GDP.

The Fed must have wide latitude to lower the short-term policy interest rate. It had been long recognized that if short-term rates approached the zero bound, monetary capabilities would be diminished.