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Dallas Fed Kaplan: Growth will fall below 2% after next year

Dallas Fed president Robert Kaplan expect solid growth in the US this year, with falling unemployment and rising wages. According to him, unemployment rate could fall further to as low as 3.7%. However, he warned of sluggish growth ahead.

He noted that “because the near-term outlook for GDP growth is positive, this may lull observers into believing we are on a path to sustained improvement in the economic performance of the U.S. economy.” However, as the effect of tax cut and budget stimulus fade, also as Fed normalizes monetary policy, growth will fall below 2% after next year.

He added that “unless Congress and the White House initiate structural reforms that improve workforce growth, education and skill levels of our labor force, moderate the expected path of government debt growth, and adopts policies that allow us to capture the opportunities provided by globalization, we are likely to see sluggish rates of GDP growth in the medium and longer term,”

Also, Kaplan pointed out that business are lacking pricing power for the moment. He noted “pricing power of businesses is more limited than we’re historically accustomed to seeing at this stage in an economic expansion.” And that could limit inflation and inflation expectations.

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