US Economy: Is present situation similar to the 1987 slide? What will happen next?

Is there any similarity between the slide in the US economy in 1987 and the present condition? Economists still recall 1987, when the economy averted a downturn after a capital market meltdown. Talking to Bloomberg, economist Ed Yardeni has said that the present scenario is very similar to the 1987 crisis. He said that there was a bloodbath in the global stock market that witnessed a crash that occurred in one day. He said that it was implied that the US economy would slip into a recession, but that did not happen.

Carry Trade

Ed Yardeni told Bloomberg Surveillance that the so-called carry trade was undermined by the Bank of Japan’s interest-rate hike last week. He said a lot of this selloff has to do with this carry trade unwind. This was the story in 1987 too when similar conditions prevailed sending the stock market sentiments into a tailspin.

1987 Crisis: Fed cuts rates

Then Federal Reserve Chairman Alan Greenspan slashed the bank interest rates and pumped liquidity into the financial system that saved the economy. He has expressed hope that Jerome Powell will take a similar step and cut the interest rates to save the economy from going further south.

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Yerdani expects a 50 basis-point rate cut

Before the stock market bloodbath on Monday, Ed Yardeni said that it would trigger panic in the global market and the Fed would take immediate steps to cut down the rate. On Tuesday, the S&P 500 index tumbled down about 2.3% as of noon in New York, after sliding to about 4.3% earlier in the day. Japan’s Topix Index crashed more than 12%. Yerdeni also told Bloomberg that the policymakers first should lower concerns about the US economy and then push back against the potential for the Fed to begin its easing cycle with a 50 basis-point rate cut.Also Read : Report reveals 99 terror suspects entered U.S. illegally under Biden-Harris administration

FAQs

What happened in the 1987 economic crisis?
The stock markets tumbled in one day, setting the alarm bell on and people were panicked thinking that the US economy would soon slip into economic recession. However, the Federal Reserve slashed the bank rates, and pumped money, and the recession was averted.

What does Ed Yerdani expect now?
Economist Ed Yardeni hopes that the Federal Reserve will soon slash the bank interest rates by 50 basis points and the US economy will not slip into a recession.