Economist: Relaxed Credit Is Boosting U.S. Economy

NEW YORK (MainStreet) -- A Wall Street economist says that bank credit is one of the major lynchpins supporting the fragile economic recovery, if you can even call it that.

The good news is that Mike Norman, chief economist at New York City-based John Thomas Financial, expects credit to ease further, leading to higher consumer spending, leading to a more robust economy. But that only works if the consumer does his and her part.

The Federal Reserve said yesterday that it will do its part by keeping interest rates low (to promote easier credit) for at least the next two years. In a statement released Wednesday, the Fed’s Open Market Committee said the “economy has been expanding moderately,” and that key economic benchmarks seem to be inching upward.

“Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated,” the statement said. “Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable.”

“To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy,” the FOMC added. “In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions — including low rates of resource utilization and a subdued outlook for inflation over the medium run — are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”

Stability is what the Federal Reserve seeks, but the American public isn’t buying what the Fed is selling. A brand new Fox News poll says that 83% of the country still thinks the U.S. is in recession, and another 35% of Americans say that the economy will get worse before it gets better.

Some reputable economists disagree with the average American, and suggest that the U.S. economy has done nothing worse than slide into a “soft patch.”

That’s the exact term used by Norman. In a research note released Wednesday, he says there is “plenty of evidence” the economy will remain in the 2-to-2.5% growth rate for the rest of 2012. That’s hardly recession territory, which is defined as two consecutive quarters of negative economic growth (which is exactly what’s happened to the U.K. this year).