What Recovery? The Case for Continued Expansionary Policy at the Fed
July 25, 2017
By J. W. Mason
Today’s dominant story, told by the Federal Reserve, the media, and many prominent economists, is that the economy has recovered from the recession and is growing about as fast as it can without overheating. This outlook has led the Fed to increase interest rates four times since December 2015, ending the historically low rates it maintained for nearly a decade. As evidence that the economy is at potential—i.e. is utilizing all productive labor, capital, and resources—many cite the unemployment rate of 4.3 percent. This is the lowest it has been since 2001, and it’s expected to continue falling, although inflation remains below the Fed’s 2 percent target.
However, Roosevelt Fellow J. W. Mason, among others, questions the premise that we have achieved full employment and GDP is currently at potential. In this report, we show that output in 2016 remains well below pre-recession expectations. Low demand and reduced investment, he argues, have kept labor and capital on the sidelines. To achieve the kind of high pressure economy that promotes investment, raises wages, and increases work force participation, the Fed should pursue much more expansionary policy.
Read the What Recovery? brief
click here Opens in new windowAuthor
J.W. Mason
Senior FellowJ.W. Mason is a senior fellow at the Roosevelt Institute and economist with the macroeconomic analysis team. His focus is on public spending and government debt, finance and monetary policy, and the importance of strong demand and full employment. He also works on trade policy, corporate finance, and decarbonization.