NVI Technical College Information

Economic Feasibility

Of course, many economists have been saying this for about a year,

The economy is indeed slowing. But GDP still appears to be growing

and they have been wrong. That ’ s why we are seeing the current

faster than its long-run potential — the growth rate that can be

bout of optimism.

sustained in the long run. And job growth has slowed, but the

economy continues to add jobs at rates that are much greater than

But what if the economy finally comes to the point when the impact

the underlying growth of the labor force. GDP and employment

of past monetary policy starts to show up? After all, it ’ s been less

growth will have to slow even more sooner or later to reflect longer

than two years since the Fed started raising interest rates.

term trends. In our forecast, we estimate that labor force growth will

A

fall to around 500,000 per year in the coming years. The level of job

Second, Fed tightening has already created fragility in financial

growth consistent with full employment would then be just 41,000

markets. The Fed doesn ’ t intend to create a recession by sparking a

per month. Increased immigration and unusually high growth in

financial crisis. The higher it raises interest rates, however, the more

labor force participation could allow faster job growth, but it would

likely such a crisis becomes.

be hard to bet on either of these scenarios.

Despite all those possible reasons for gloom, the US economy is

On the face of it, this would seem to call for even more Federal

coming into fall with continued growth, lower inflation, and the

Reserve (Fed) tightening, as slow labor force growth keeps the job

possibility that all that talk about recession was, in the end, just

market tight. But two problems arise. First, those “ long and variable

that — talk.

lags ” of monetary policy tightening suggest the possibility that a

slowdown is already embedded in economic decision-making.

Source: Deloitte

24