The rate of growth of our economy has stepped down from the unsustainable pace of earlier this year. During such a period, potential risks emerge more clearly. First, we must be mindful that an unexpected slowdown might occur in the growth of productivity. As I said, I am cautiously optimistic that the rapid pace of productivity growth can be extended.
However, we now know that an unexpected and unrecognized slowdown in productivity growth occurred in 1973. The causes are still debated, but we know that the slowdown contributed to "stagflation," which emerged as employees demanded increased compensation, based on unrealistically high expectations of productivity growth and gradually rising inflation expectations, and employers granted those increases.