Fed's Barkin sees 'somewhat slower' growth, argues against 'short-termism'
By Alexander Bueso
Date: Thursday 10 Jan 2019
(Sharecast News) - A top US central bank official forecast slower growth in 2019 versus the prior year in a speech delivered on Thursday, underlining some of the caution evident in recent policy remarks from his peers.
In remarks prepared for a speech to be delivered at the Greater Raleigh Chamber of Commerce, the President of the Federal Reserve bank of Richmond, Tom Barkin, said he expected a "somewhat slower" pace of expansion in the US in 2019.
He also said he was hearing a lot of concern regarding the durability of the current economic cycle, driven by concerns around the environment, trade, growth overseas, politics, volatility in financial markets and lower profit margins.
Nevertheless, the brunt of his speech focused on some of the longer-term drivers of economic growth, such as the size of the labour force and investment to boost productivity.
Regarding the former, he pointed out the large differential that existed - of about eight percentage points - between female workforce participation rates in the US and Canada.
Barkin also defended the virtues of legal immigration and current low work-force participation rates overall, which might perhaps be alleviated by training programmes for the lower-skilled.
On the current low rates of labour productivity growth, which had nearly halved from about 2.3% per annum before the crisis to 1.3% at present, Barkin believed the main cause was under-investment, driven in part by short-termism on the part of management teams.
Nevertheless, a good regulatory framework and stable politics were also needed.
In a nutshell, if the labour force was set to grow by just 0.6% per year and productivity was growing at only 1.3%, then the American economy's potential was near 2.0%.
More significantly, he argued that with the right policies it could be higher, creating a virtuous circle in terms of innovation, corporate profitability, government revenues and fiscal sustainability.
"The United States faces a slower growth trend that isn't in any of our interests. Changing the slope is doable via initiatives to expand the workforce and boost productivity growth. It's an opportunity this country can't afford to pass up."
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