Adverse feedback loop
From Wikinfo
An adverse feedback loop is a feedback mechanism, negative feedback loop, where negative events produce more negative events in a reinforcing cycle. The phrase was in use in 2008 with reference to financial analysis and was used notably by Janet Yellen, president of the Federal Reserve Bank of San Francisco in this speech to the Chartered Financial Analysts of Hawaii February 7, 2008:
To sum it up, for the next few quarters, I see economic activity as weighed down by the housing slump and the negative factors now impacting consumer spending. It remains particularly vulnerable to the continuing turmoil in financial markets. My comments haven’t even touched on possible slowdowns in business investment in equipment and software and buildings. I see the growth risks as skewed to the downside for the near term. In circumstances like these, we can’t rule out the possibility of getting into an adverse feedback loop—that is, the slowing economy weakens financial markets, which induces greater caution by lenders, households, and firms, and which feeds back to even more weakness in economic activity and more caution. Indeed, an important objective of Fed policy is to mitigate the possibility that such a negative feedback loop could develop and take hold.
External links and further reading
- "Rising Inflation Limits the Fed as Growth Lags" (page 2) article by Edmund L. Andrews and Michael M. Grynbaum in The New York Times February 21, 2008
