According to the BEA in a couple of years real output (RGDP) will be back to potential

I find that terribly distressing because it will make monetary policy makers complacent!

Which picture better reflects reality? The top chart is from the BEA´s calculation of potential, showing that by 2016 the economy will be back very close to its potential level.

The bottom chart is based on a ‘centenary trend’ for RGDP which starts in 1870! (see here). Even assuming the level of output fell permanently below the trend (or potential) level in the early 00s and that trend (or potential) growth has also been reduced, the chart shows that only by a miracle the gap will be closed by 2016!

BEA Potential

HT David Beckworth

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