While my views on the appropriate path of policy will be impacted by economic conditions as they unfold during the year, I continue to believe that gradual and patient removals of accommodation will increase the likelihood of extending the economic expansion in the U. History suggests that if the Fed waits too long to remove accommodation at this stage in the economic cycle, excesses and imbalances begin to build, and the Fed ultimately has to play catch-up.In my judgment, getting behind the curve and then trying to catch up would increase the likelihood of recession in the U. While Dallas Fed economists forecast strong economic growth in 2018, they also expect growth to moderate to 1.75 to 2 percent by 2020. This level of potential GDP growth is lower than we’ve historically been accustomed due to several structural issues discussed below.
While consumer leverage helped fuel GDP growth leading up to 2007, in 2008, it became apparent that the consumer had to deleverage. The corporate tax reform elements of recent tax legislation should help to encourage greater business formation and investment, which should lead to greater productivity and some increase in the growth potential of the U. Ultimately, we believe that growth will return back to trend.
It has taken several years—along with an improving job market—for the consumer to reduce debt relative to their income. Dallas Fed economists believe that the expected near-term boost to GDP needs to be balanced with the concern that debt to GDP is likely to materially increase in the years ahead.
These positions require more than a high school education.
Due to technology-enabled disruption, the training levels for these middle-skills positions have intensified over the last several years.
Our economists expect cyclical inflation pressures to build during 2018.
While these pressures will likely be at least partially offset by the impact of technology-enabled disruption (see Appendix A), I believe the headline rate of inflation is likely to firm during the year, and we are likely to make progress toward reaching the Fed’s 2 percent longer-run inflation target.This research indicates that it would be appropriate for the U. to consider reforms to the current immigration system to more heavily take into account immigrant skills as well as other employment-based criteria. is a leader in many areas versus the rest of the world.Such reforms could help enhance the economic and societal benefits from immigration. Whatever policy decisions are made, it is clear that the resolution of current debates relating to immigration policy has the potential to either supplement or create headwinds for future workforce growth in the U. One potential offset to these demographic trends could be improvements in labor productivity. However, average growth in labor productivity over the past decade has been sluggish at approximately 1.1 percent per year. Labor productivity growth averaged approximately 2 percent from 1977 through 2007. Unfortunately, several studies suggest that skill levels and educational achievement levels of our workforce have lagged other developed countries for the last several years.The Federal Open Market Committee (FOMC) in its January meeting decided to leave the federal funds rate unchanged in a range of 125 to 150 basis points. We also expect business investment to be stronger than in 2017, and we believe that improved global growth could also help support economic growth in the U. Our forecast reflects the positive near-term impact of the recent tax legislation. We also expect U-6—a measure of labor slack that tracks the number of unemployed plus “marginally attached workers” (workers who indicate that they would like a job but have stopped looking for one) plus those working part time for economic reasons—to decline from 8.2 percent to well below 8 percent.In our FOMC statement after the meeting, the committee explained that it expects “economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate.” The purpose of this essay is to briefly discuss my views regarding economic conditions, the implications for monetary policy and address a few of the fundamental challenges facing the U. It is our view that the bulk of this impact will be felt in 2018 and to a lesser extent in 20. It is the judgment of Dallas Fed economists that current levels of headline unemployment as well as U-6 are indicative of an economy that is either at or has moved past the level of full employment.While Dallas Fed economists are hopeful that increased capital spending could help improve labor force productivity, they also observe that technological progress may not contribute to productivity growth as much as it once did. According to recent Organization for Economic Cooperation and Development (OECD) surveys, the U. ranks 24th out of 35 developed countries in measures of math, science and reading skills among 15-year-olds. In addition, in surveys of 29 participating OECD countries, the U. ranked 20th in assessments of adult literacy and math skills. Research by Eric Hanushek of Stanford University with Ludger Woessmann of the University of Munich suggests that improvements in U. math and science skills could translate into meaningful improvements in potential GDP growth in the U.One reason for this sluggishness may be lagging skills and educational achievement levels of the U. S. While these efforts are likely to take years, they could have substantial potential to improve future growth and prosperity in the U. In addition, in the most recent National Federation of Independent Business small-business survey, 49 percent of respondents said they were unable to find qualified workers to fill open positions. Similarly, respondents to Dallas Fed surveys report that they are unable to find workers with adequate technical, organizational and other basic skills to fill open positions.Possible remedies to the effects of aging demographics could include incentives for workers to work later in their careers, inducing discouraged workers to return to the workforce and/or other measures that could help improve the rate of workforce growth in the U. In addition, immigration has historically been an important element of our nation’s workforce growth.Based on published data, our Dallas Fed economists estimate that immigrants and their children have comprised over half of the workforce growth in the U. over the last 20 years and expect this group to comprise an even higher percentage over the next 20 years. Our economists have done extensive research regarding U. immigration as well as the immigration policies of other countries.That is, for those who have a college degree, the unemployment rate stands at 2.1 percent, and the labor force participation rate is 73.4 percent.If you have some college education, the unemployment rate is 3.4 percent and participation rate is 66.0 percent; a high school diploma, the unemployment rate is 4.5 percent and participation rate is 57.5 percent; and some high school education, the unemployment rate is 5.4 percent and participation rate is 44.8 percent. Increasingly, workers with lower levels of educational attainment are seeing their jobs restructured or eliminated.