Going forward, I anticipate continued strong growth in demand but, given persistent solid gains in productivity and potential output, only a gradual closing of the output gap. Under these circumstances, ongoing competitive pressures in labor and product markets should help to contain cost and price increases.
Some shift to safe assets is also seen in U.S. portfolios: U.S. investors actively rebalanced their holdings of foreign financial sector bonds toward those with higher credit ratings, but at some cost in returns (figure 7; figure 8). 7 Taken together, developments in U.S. bond portfolios do not indicate a worrisome pickup in risk-taking in external investments.