potential growth

Robin Harding

The most interesting part of Ben Bernanke’s speech today is what he says about the recession reducing potential growth in the US.

“The accumulating evidence does appear consistent with the financial crisis and the associated recession having reduced the potential growth rate of our economy somewhat during the past few years. In particular, slower growth of potential output would help explain why the unemployment rate has declined in the face of the relatively modest output gains we have seen during the recovery.”

This is quite a big evolution in Mr Bernanke’s arguments about the weakness of the recovery and why the unemployment rate has fallen faster than expected. This is from his March speech on the labour market:

“Notably, an examination of recent deviations from Okun’s law suggests that the recent decline in the unemployment rate may reflect, at least in part, a reversal of the unusually large layoffs that occurred during late 2008 and over 2009. To the extent that this reversal has been completed, further significant improvements in the unemployment rate will likely require a more-rapid expansion of production and demand from consumers and businesses, a process that can be supported by continued accommodative policies.”

 Read more

Ralph Atkins

In his Financial Times interview, published today, Jean-Claude Trichet suggested the mood on the US economic outlook was “too negative”. The European Central Bank president was probably referring to the quite short-term.

A speech by Lorenzo Bini Smaghi, an executive board member, just posted on the ECB’s website, suggests the Frankfurt-institution is itself rather gloomy about longer-term US prospects. Read more