Rapid technological change and continued declines in the cost of high-tech equipment should enable more substantial efficiency gains in a wide array of industries. Moreover, healthy profits and low borrowing costs should encourage firms to acquire new capital assets, which will give workers more and better equipment to use and thus make them more productive.
Taken together, these arguments suggest that productivity will continue to advance at a rapid rate, but not at the extraordinary pace of recent years. This transition, combined with solid growth in aggregate demand, should result in stronger hiring and a narrowing of the output gap. As with the transition in demand, the transition to less-spectacular growth of potential supply involves important risks.