Greater Providence Chamber of Commerce Business Expo 2000

• Published in: Policy File 2000
• Main Author: Minehan, Cathy E
• Format: Report
• Language: English
• Subjects: Banking/Finance; Economic policy; Federal Reserve Bank of Boston; Labor force/Employment

By almost any measure, a review of our recent past is highly encouraging. The performance of the U.S. economy over the past four years has been extraordinary. Since 1996, GDP growth has averaged an exceptionally strong 4-plus percent; over 8 million jobs have been created, and the unemployment rate has declined to 30-year lows. In February, the current expansion became the longest in U.S. history. Most people are enjoying rising real incomes, and the gap between the bottom and top of the income distribution, which grew in the '80s, has stopped widening. Most remarkable of all, during this long, vigorous expansion, inflation has remained very well behaved, with core inflation (excluding volatile food and energy prices) averaging close to 2 percent for the last two years. Of course, with oil prices having tripled from unusually low levels early last year, the total CPI has risen somewhat faster in recent months. So now, the $64-billion or possibly -trillion question is how long can this favorable combination last? Is the recent spike in oil prices a symptom of growing imbalances between supply and demand? Or will the factors that have allowed rapid growth and moderate inflation to last for five years continue to prevail? The answer is important, for if the economy can go on growing without rising inflation, we can continue to create new jobs and improve standards of living. But if inflation rises sharply, this progress will be threatened. So, today the author plans to consider whether the factors that have made this good performance possible show signs of abating. The author will also point to some symptoms of growing imbalance that warn against taking the good times for granted.