In my analysis of effective demand, I can see the state of the economy before the Federal Reserve responds with their Fed rate.
Here is the graph of the final difference between the effective demand limit and the utilization of labor and capital (TFUR) after monetary policy has been taken into consideration.
We see that the difference falls to between 0% and -2% before a recession happens. We also see that currently, the difference is above 0% implying that a recession is not imminent.
Now here is a graph of the difference between the effective demand limit and the utilization of labor and capital before monetary policy is taken into consideration.
In the 1970's, the economy was far below -2%, but easy monetary policy boosted it back up as seen in the first graph. Since 1980, the economy always reached around -2% before going into a recession. In 2014, the economy reached once again that -2% level implying that the economy was sensitive to recessionary forces.
Since 2014, effective demand is rising again due to falling headline inflation and falling long-term treasury rates. You can see that in the first graph, the plot is pushed above the 0% level by super aggressive monetary policy. However, if it were not for these effects of easy monetary policy and falling oil prices, we might have seen more of a correction in the stock market.
The economy is hitting a level which in the past meant that the economy had reached its maximum level of employing labor and capital before a recession happened. However, super aggressive monetary policy is keeping the economy expanding. How much can monetary policy keep the economy expanding beyond this point? We will see...
If monetary policy does start to tighten, and oil prices start to rise again... then I would expect to see recessionary forces awaken. But the economy may have another way to postpone a recession. Something to watch.