The Most Important Least-Noticed Economic Event of the Decade

The slowdown across emerging markets, in turn, meant less demand for oil and many other commodities. That helped cause their prices to fall. The price of a barrel of West Texas Intermediate crude oil fell to under $30 in February 2016 from around $106 in June 2014. The drops in the prices of metals like copper and aluminum, and agricultural products like corn and soybeans, were also steep.

That only heightened the economic pain for the many emerging economies that are major commodity producers, such as Brazil, Mexico and Indonesia.

Given falling prices and high debt loads among energy producers in the United States, the markets for stocks and riskier corporate bonds came under stress, especially in early 2016. That generated losses for investors and fears about the overall stability of the financial system.

Each of these forces has connections to the others. It wasn’t one problem, but an intersection of a bunch of them. That made it devilishly hard to diagnose, let alone to fix, even for the people whose job was to do just that.

The view from Washington

When Federal Reserve officials meet eight times a year to set interest rate policy, their job, assigned by Congress, is to figure out what is best for the United States economy. Their job isn’t to set a policy that will be best for China or Brazil or Indonesia.

Entering 2015, things were looking pretty good for the United States.

Inflation was below the 2 percent level the Fed aims for, but the traditional economic models on which the central bankers had long relied predicted that it would start to rise thanks to a rapidly falling unemployment rate.

Even when prices for oil and other commodities started falling in the middle of the year, the Fed’s models viewed it as a positive for the overall economy. Sure, some oil drillers and farmers might experience lower incomes, but consumers everywhere would enjoy cheaper gasoline and grocery bills.

Article source: https://www.nytimes.com/2018/09/29/upshot/mini-recession-2016-little-known-big-impact.html?partner=rss&emc=rss