PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

The Fed’s Upbeat Outlook on the Economy … For Now  

By at 13 June, 2018, 4:03 pm

by Raymond J. Keating-

In its Federal Open Market Committee statement released on June 13, beyond the quarter-point increase in the federal funds rate to a targeted range of 1.75 percent to 2 percent, the Fed was quite upbeat in its assessment on the state of the U.S. economy.

For example, the statement opened: “Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly.”

That’s the most optimistic take in many years, and that’s good news.

What about the longer-term outlook?

However, the Fed stayed rather glum in its longer term economic projections, with the median projections for real GDP growth being 2.8 percent for 2018, 2.4 percent for 2019. 2.0 percent for 2020, and a woeful 1.8 percent for the “longer run.”

The economy clearly has benefitted from the tax and regulatory relief that has occurred over the past year-and-a-half. These actions will continue to have beneficial effects going forward. The economy would benefit further from, for example, additional tax and regulatory reform measures, a shift from recent protectionism to free trade policies, and the Fed signaling that it is serious about reining in unprecedented loose money that it has engineered for the past decade.

Indeed, there is no reason to assume that the default growth rate for the U.S. economy is 2 percent or less – which is what the Fed apparently assumes – that is, as long as we get the policy foundations right for entrepreneurship, investment and growth.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

 

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