Schizophrenia is “a long-term mental disorder of a type involving a breakdown in the relation between thought, emotion, and behavior, leading to faulty perception, inappropriate actions and feelings, withdrawal from reality and personal relationships into fantasy and delusion, and a sense of mental fragmentation.”
In general use it is referred to as “a mentality or approach characterized by inconsistent or contradictory elements.” It is also often used to refer to someone with a split personality.
It is a truly severe mental disorder that is difficult to treat. And it seems to be a perfect description of today’s economy.
Thursday: Don’t Raise Rates This Year
As a recent example, consider last week’s announcement by the International Monetary Fund (IMF) that it was lowering its growth estimate for the U.S. economy from 3.1% to 2.5%. Both estimates are well below the 3.3% annual growth rate that was the norm before the financial crisis, but even 2.5% is average the average we’ve seen throughout the Obama presidency.
The IMF, which suggested that the Federal Reserve Board wait until 2016 to raise interest rates, downgraded its growth prediction because of a series of “negative shocks,” including bad weather and the strong dollar. The stronger dollar is blamed, because a weak dollar makes U.S. goods less expensive and, therefore, relatively more attractive for foreign buyers.
The dollar has strengthened not only because the Federal Reserve Board ended its quantitative easing program, but because other countries have begun similar programs which are weakening their currencies.
Of course, an annual growth rate of 2.5% is pretty optimistic, considering that the economy shrank by 0.7% in the first quarter, according to the U.S. Bureau of Economic Analysis. The economy would have to grow by a rate of 3.57% for each quarter through the end of the year to achieve that modest growth rate.
Friday: Raise Rates in September
The day after the IMF announcement came news that the U.S. economy added 280,000 jobs in May.
The U-3 unemployment rate still nudged up from 5.4% to 5.5%, because the number of people looking for jobs increased faster than the number of jobs available. That’s considered good news, because it signals that many people who had given up looking for work are looking again.
The U-6 unemployment rate, though, which counts people who are not working as … well, not working … is still 10.8%, which is the number it was at in April, too.
In addition, annual income for private sector workers grew 0.3% in May and were up 2.3% from a year earlier, which shows improvement from the 2% annual rate that has been the norm in recent years. While income is showing signs of increasing, consumer spending is not – even with this year’s drop in gas prices. 
As The Wall Street Journal reported, “Economists said the pickup in wages, coupled with robust job growth, is likely to reassure Fed officials the economy is healthy enough to begin raising interest rates from near zero as soon as their September policy meeting.”
Meanwhile, though, other data released last week showed that productivity fell at a 3.1% seasonally adjusted annual rate in the first quarter, which shouldn’t inspire too much confidence in an allegedly growing economy.
So when will the Fed vote to increase interest rates? It’s almost as if economists are consulting each other and consistently coming up with the same predictions as a group. They’ve been consistently wrong to date on when interest rates will increase, just as they were wrong about when quantitative easing would end. They will likely be wrong again and we will not see interest rates increase until 2016.
Of course, anything’s possible with today’s central banker-driven economy.
“Withdrawal from reality” … “inconsistent or contradictory elements” … “fantasy and delusion” … it sure sounds like today’s economy.