Geopolitical uncertainty and other factors holding back growth may recede, and the U.S. economy could resume the robust trajectory of last year. Or GDP growth could continue closer to trend, which is my own forecast. Finally, there’s always a chance that downside risks could knock GDP growth off course. But what the data’s telling us is that this period of slow growth isn’t an aberration—it’s the “new normal” we should expect for the foreseeable future. Monetary Policy So what does all this mean for interest rates? With the economy running close to our dual mandate goals, monetary policy is in the right place. Looking ahead, the Fed will watch the data and use monetary policy to keep the expansion on track. When growth is well above trend, raising interest rates to keep the economy on a sustainable path is the right decision. Equally, when faced with a crisis like the Great Recession, it’s incumbent upon policy makers to use every tool at their disposal to get the economy back on course. It’s important to remember the change in the long-run economic fundamentals means that interest rates are likely to be lower than what we saw in the 1990s, for example. In addition, the slope of the yield curve is unlikely to return to levels typically seen in the past. This “new normal” clearly has implications for banks, large and small. Conclusion In conclusion, the outlook is positive. GDP growth is on track, unemployment remains low, and there are no signs of inflationary pressures building.
You know the customers in your community because you are an integral part of the community. You represent an essential part of our financial system and economy. But I know you didn’t come here today to hear me tell you what an important job you do. What I hope is that I can give you some insights that will be useful going forward. I know interest rates play a vital role in your businesses, so I’d like to spend a bit of time talking about the outlook and what that means for monetary policy. But before I do, I need to give the standard Fed disclaimer that the views I express are mine alone and do not necessarily reflect those of the Federal Open Market Committee or anyone else in the Federal Reserve System. Where Things Stand For the last decade we’ve all had our focus on recovery from the Great Recession. The path to getting back on track has been a long one, and there is a sense that the economy has now fully recovered. GDP growth came in at 3 percent in 2018 and I expect it to be around 2 percent this year. The difference between last year’s numbers and this year’s forecast has caused some concern, and that’s where I’m going to keep my focus. Many people are hoping for GDP growth of 3 or 4 percent, similar to what we saw in the late 1990s. Less optimistic forecasts for 2019 growth are therefore, understandably, a source of worry.