Syndicate
With what precision can the economic indicators predict the turn of the economy in its whole?
Indicators, no matter how perfect and mathematically exact they are cannot in all cases predict the changes in progress of the economy. A reason for this is the variability of the anticipation and delays. A s an average, a determined indicator can be five or six months in advanced or behind the economy, but sometimes this period can be increased to ten months or decreased to two. Another aspect that limits the precision of the indicators is the difficulty to gather information for studying.
Also, these indicators were developed in the fifties for them to indicate the course of the economy of the period.
The reason, in spite of its inexactness, is an important dependence in the indicators in that there are not any other tools to determine the course of the economy.
An important economic agent that is thoroughly watched by the professional investors is the Federal Reserve Bank. The FED, as it popularly called, has the task of keeping vigilant for a balanced economic expansion. This means that it has to stimulate the economy in recessive stages and to exercise a moderate influence during times of high inflation and of strong economic expansion.
What the investors seek is the kind of politics that the FED follows. During recession, the FED follows a policy of cheap money in order to stimulate the growth by means of low interest rates. That is why it is so important to have a current knowledge of the course of action that the FED is going to take.
The low interest rates end up stimulating the economic growth, while high interest rates stop it.
In the financial American environment there is a saying “Don?t fight against the FED”. Historically, three trimmings of types done by the Federal reserve Bank, a promise for a monetary frolic, conducted after six months of the last trimming to a revival of the stock exchange market, and the opposite: three raises or “jumps” of the interest rates provoked an stagnation or a slowdown of the economy and the falling of the stock exchange market. The first thing one has to do in every investment planning is to determine the course of the economy. Knowing if the economy will get better or worse can help take a series of decisions and among them if its worth investing money in the shares or debentures markets if it would be best not to do it.
If your decision is to invest the economic perspectives that you foresee will have influenced in the amount and time in which to do it. A rational investment requires economic projection.