Economic Outlook, December 2010

It is a pleasure to be here again this year and to be able to see some long-time friends. Many of you regular attendees of this gathering are quite familiar with the background to our current macroeconomic situation. For the past two years, our discussions have been concerned with the financial crisis and its aftermath, and rightfully so, since the 18-month-long recession that ended mid-2009 was the most severe contraction in over 70 years. Since the end of the recession, real GDP has grown at an annual rate of 2.9 percent, which is barely above trend and quite modest when compared to other cyclical recoveries. Moreover, that growth has been irregular, ranging as high as 5 percent to as low as 1.7 percent. Right now we are in something of a soft patch; real GDP grew at a below-trend 2.5 percent annual rate last quarter, and analysts are calling for relatively sluggish growth in the current quarter as well. Before talking about the outlook, I would like to highlight the main reasons that I believe growth has been relatively sluggish so far. Before I do, however, I should note that, as always, the views I express today are my own and do not necessarily reflect those of my colleagues on the Federal Open Market Committee.1