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March 6, 2019

Key Takeaways from President Williams’s Speech on the Fundamental Drivers Behind Slower Growth

On Wednesday, March 6, New York Fed President John Williams spoke to the Economic Club of New York. He discussed the current economic outlook, the fundamental drivers behind slower growth, and what that means for the path of monetary policy.

He said:

“For quite some time, the economic fundamentals have pointed to GDP growth much lower than what we saw in the 1990s, for example.”

“Slower growth is the ‘new normal’ we should expect. And, it’s important to remember that this is happening at a time when the labor market is very strong.”

“The base case outlook is looking good, but various uncertainties continue to loom large. Therefore, we can afford to be flexible and wait for the data to guide our approach.”

During the speech in New York, President Williams said that “Moderate growth, both in the U.S. and the global economy, is far less alarming when you know what the underlying factors might be.” He noted that the “potential growth rate, or g-star, currently appears to be about 2 percent,” due to a slowdown in labor force growth and productivity growth.

President Williams explained that GDP growth just above 3 percent last year was boosted by a number of positive tailwinds, including “strong global growth, fiscal stimulus, and accommodative financial conditions.” But many of these tailwinds have calmed, and he expects “growth to slow considerably relative to last year, to around 2 percent”.

Discussing the economic outlook, he said, “there are a number of different scenarios that could play out over the year ahead.” President Williams noted that in the current conditions the phrase “data dependent” takes on even more importance, and that patience and flexibility would be essential in determining future policy actions.

Read the full speech.

This article was originally published by the New York Fed on Medium.

The views expressed in this article are those of the contributing authors and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.


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