United States: Downside risks

Healthy gains in private consumption have helped to keep GDP growth above trend so far this year. However, the correction in residential construction is likely to accelerate over the near term, and housing wealth could decline which, together with weaker labour market conditions, could lead to lower consumption growth over time. Real GDP growth should therefore slow to a pace below potential in 2008 and then recover in 2009, although there are considerable downside risks. Headline inflation has recently moved up, but core inflation seems to have stabilised near 2% and, assuming that energy prices level out, inflationary pressures should remain fairly moderate over the projection period.
The current stance of monetary policy, slightly accommodative, seems appropriate, but the federal funds rate should be brought back to neutral when the economy recovers. The room for fiscal manoeuvre is limited, including for widespread support to distressed borrowers, since the slowdown in activity is likely to curb revenues, pushing up the federal government deficit. In addition, the challenge of funding entitlements will become more pressing with the baby boom generation beginning to retire in 2008.

 


©OECD Observer No. 264/265,
December/January 2008 OECD Economic Outlook No. 82, December 2007 - Preliminary version
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Economic data

GDP growth: +0.3% Q3 2019
Consumer price inflation: 1.8 % Nov 2019 annual
Trade (G20): -0.7% exp, -0.9% imp, Q3 2019
Unemployment: 5.1% November 2019
Last update: 15 January 2020

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