The U.S. economy will probably rebound from the worst downturn since the Great Depression at a faster pace than most economists project, researchers from the San Francisco Federal Reserve Bank said on Monday.
The economy, which has grown at a 3.7 percent annual pace since it bottomed last June, is likely to grow about 4 percent this year and 3.5 percent next year, according to projections included in the latest San Francisco Fed Economic Letter.
The forecasts, which rely on a model developed by former senior Fed economist Thomas Laubach and San Francisco Fed research director John Williams, are higher than the 3 percent growth seen by economists surveyed in the Blue Chip Economic Indicators newsletter.
Still, growth is likely to fall well short of the sharp upswing — a so-called V-shaped recovery — that normally follows a deep recession, Williams and SF Fed research associate Justin Weidner said in Monday’s Economic Letter.
“Analysis of the factors that determine economic growth rates indicates that recovery from the most recent recession is likely to be faster than from the two previous recessions, but slower than earlier V-shaped recoveries,” they wrote.
The Fed cut its key target rate to near zero percent in December 2008 and pumped more than $1 trillion into the economy with the purchase of assets such as U.S. Treasuries. Those actions brought the real rate at which banks borrow overnight from each other to negative 1.5 percent, the researchers said.
Such extraordinarily low interest rates have helped boost the economy, they said. But the crisis-weakened financial system and high unemployment are acting as headwinds.
The researchers said their estimates are uncertain and that real growth could under- or over-shoot their forecasts.
But they said their model was much more accurate in predicting actual growth in the first three quarters of the recovery than Blue Chip forecasters, who underpredicted the pace by more than one percentage point.
“In the past, large output gaps, rapid growth of potential output, and real interest rates well below the natural interest rate have contributed to rapid V-shaped recoveries,” the researchers said. “Now they point to a moderate pace for the current recovery, somewhere between the U and V shapes of the past.”
By Ann Saphir – reuters.com
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