About a year and half ago, U.S. President Donald Trump speculated that his policies could drive the U.S. economy to levels of growth few experts found credible. “So we’re at 3.3 per cent,” he said, citing recently revised Q3 2017 GDP growth numbers. “I see no reason why we don’t go to four per cent, five per cent, and even six per cent.”
That’s not necessarily a bad thing. Steady two-per-cent-ish growth is a lot more digestible than a volatile progression of overheated economies followed by deep recessions. As moribund as growth has been in the post-recession era, at least we haven’t tipped into a bad downturn. And maybe we won’t.
For one thing, these are hardly ordinary days for monetary or fiscal policy. The Federal Reserve has spent the past two months giving markets whiplash, as it swerved from telegraphing multiple rate hikes to none. Massive short-end bond issuance in the U.S. and the Fed’s unwinding of its recession-bloated balance sheet have also served to support short rates. It takes time for bond markets to sort that stuff out.
Which brings us back to the yield curve. For one thing, the 10-year/30-year spread, which some analysts think is a more accurate indicator of an economic slowdown, has been increasing — no inversion here. For another, the “psychologically important” breakthrough point of a three-per-cent 10-year U.S. Treasury yield — hit last year — is now firmly in the rearview mirror. The U.S.
People commenting on growth often overlook the fact that rate of growth has been trending down for over 40 years with a growing (imported) population. The trend will break 0 in a decade or two.