“A slow sort of country!” said the Queen. “Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!” -Lewis Carroll, Through the Looking Glass
I have constructed a chart extrapolating the trend growth in nominal GDP* through 2013, along with the FOMC’s forecast of nominal growth through 2013.** Have a look:
[Click Image to Enlarge]
As you can see, by the Fed’s own forecast, we will remain under trend growth in NGDP through 2013. Indeed, by the fourth quarter, we will be 10.2% below the trend. That is roughly $1.7 trillion in potential output! I regard this as the “one chart to rule them all”, and it is what I point to when people ask me why we are experiencing a sluggish “jobless” recovery.
Always keep in mind, though, prediction is a fools errand over anything but the shortest of time spans. The key here is that there is only one way the prediction can be off such that it would benefit the economy. Those aren’t good odds to take.
*FRED
**Average of the central tendency.
5 comments
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Friday ~ April 29th, 2011 at 9:57 am
IVV
Perhaps we should still be happy. It looks like we are remaining above the trend of the 2000-2002 growth line, even at the nadir of the 2008 dip. Of course, the 2001 recession may have had something to do with that. What did the trend look like prior to 2000?
Friday ~ April 29th, 2011 at 1:28 pm
Schisma Tism
I’m pretty sure Bernanke is thinking “price stability”, not “trend recovery.” That’s someone else’s job.
Sunday ~ May 1st, 2011 at 4:53 am
The Arthurian
??
Hours, days, years spent not working are non-recoverable. Ideas not implemented can be put to use in the future, but not in the past. Time wasted is time wasted. This is what your graph shows.
Your graph shows a future trend apparently parallel to the old trend. That’s the best we can reasonable expect, given that everyone seemed to think things were just about as good as things could be, until financial crisis caught ‘em by surprise.
ArtS
Wednesday ~ May 25th, 2011 at 5:53 pm
Money Quote… « Modeled Behavior
[...] of monetary policy-making in 20 years, and how our crisis will look through that future lens. Will this chart haunt our current monetary policymakers’ future [...]
Thursday ~ May 26th, 2011 at 10:51 am
Lee Kelly
I haven’t looked at it in a while, but check out the comparative chart for the price level. In theory, the excess demand for money could be resolved by the general level of prices falling similarly below trend, i.e. returning real expenditures to the pre-recession trend. Last I looked, the price level had fallen a little below trend, but there was a wide gulf between it and GDP.