After puzzling for years over the sluggish U.S. rebound from the 2007-2009 recession, the Federal Reserve had a reckoning at its policy meeting in September of 2016.
Because of poor productivity and population aging, typical U.S. economic growth of 2.5% or more annually was "not possible anymore" on a sustained basis, said John Williams, the current New York Fed president who at the time was head of the San Francisco Fed, according to transcripts of a session where policymakers cut their median long-term GDP growth outlook to 1.8%, continuing a roughly decade-long slide.
It's unlikely they'll abandon their muted view of U.S. economic potential. Slower population growth is wired into the U.S. outlook at this point, immigration remains a politically-charged issue, and better productivity, the other key driver of growth, is hard to anticipate. From September 2016 through 2019, for example, the U.S. labor force grew about twice as fast as the moribund 0.5% a year Fed staff saw as the likely trend, a pace sustained once the number of available workers recovered in 2022 from a pandemic-driven downturn to its prior high.
Trump's pre-COVID years ended with the unemployment rate at 3.5% in February 2020; it has been essentially at that level since March of 2022 under Biden, with the economy still adding roughly 200,000 jobs per month. The other is the Fed. The central bank is fighting an outbreak of high inflation, largely linked to the pandemic and the response to it, with high interest rates designed precisely to force economic growth below trend.The Fed has raised interest rates by 5.25 percentage points since March 2022 in its bid to tame the surge in inflation, but so far it has not seen as much response from the economy as expected. U.S. output grew at a 2.
At the onset of the pandemic some economists suggested that changes in the application of technology or the shift to remote work might boost worker output.
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