Dornbusch - "Recoveries do not die of old age..."

 

“No postwar recovery has died in bed of old age—the Federal Reserve has murdered every one of them.” Rudiger Dornbusch

Something to keep in mind when thinking about the current economy. The Fed has it the power, through policy mistakes, to turn an economy into a hard landing. Yes, the Fed can support the economy when in a crisis. There is no doubt the being an effective lender of last resort generates significant good for the economy. 

Nevertheless, the Fed, even with good intentions, can create the problem. There is a cyclical, nature to the financial cycle, so by raising rates too fast or for too long, it can kill a recovery. Of course, we cannot say for sure since we cannot run a real experiment, but this notion requires a sense of caution from policymakers as their policies become restrictive.