Think the economy is too healthy for another round of Bernanke's stimulus? Wrong! In fact, this is the perfect time for more monetary easing. Let me explain...
For the past three years, economists have loved to hate the recovery. But they're coming around to the possibility that they might have to fall in love with the idea that the comeback is real. Typically, a stronger economy means a more conservative Fed. As this chart from Reuters shows, when growth goes up, interest rates go up. (Reminder: Chicago PMI measures business activity in the surrounding area, and the Fed Funds rate is the central bank's benchmark interest rate).
So the spat of good news means we should sit back and quietly expect the Federal Reserve to demur on any more quantitative easing, right?
THE VALUE OF A GOOD SURPRISE
Take it from none other than a former Fed governor named Ben Bernanke that this situation warrants further monetary easing. In a 2003 speech, then Fed governor Bernanke explained that there are only two factors central bankers should look at to determine whether policy is appropriate: nominal GDP and inflation. (Hat tip to Scott Sumner for the great find). So what does nominal GDP -- which just refers to the total size of the economy -- tell us now? Nothing good.