Daniel Tarullo outlines long-term challenges for the US economy
Daniel Tarullo outlines long-term challenges for the US economy (Part 1 of 6)
Who is Daniel Tarullo?
Daniel Tarullo is a member of the Board of Governors of the Federal Reserve. Other members include Janet Yellen (Chairwoman), Jeremy Stein, and Jerome Powell. The Federal Reserve uses monetary policy as its tool to achieve its dual mandate of maximum employment and price stability. The Fed has kept the Fed Funds rate near zero to boost the recovery. As the economy recovers, inflationary pressures rise, prompting the Fed to increase interest rates. An increase in interest rates would hamper the bond market (BND) and bond ETFs such as the 20+ Year Treasury Bond ETF (TLT), iShares Barclays 1-3 Year Treasury Bond Fund (SHY), iShares Barclays 7-10 Year Treasury Bond Fund (IEF), and iShares Barclays 3–7 Year Treasury Bond Fund (IEI).
Daniel Tarullo delivered a speech on “Longer-Term challenges for the American economy” at the Hyman Minsky conference on the state of U.S. and Global economies held in Washington, DC, on April 9.
Tarullo started the speech by explaining why the focus on near-term economic prospects was understandable during the over five years since he’s been serving as a board member. He went on to say that the magnitude and job loss during the financial crisis and the eventual Great Recession have compelled policymakers to focus on economic recovery rather than the longer-term challenges faced by the U.S. economy.
Tarullo quoted the following four key developments that he believes to be longer-term challenges to the U.S. economy:
Productivity growth has slowed. As a result, the overall economic pie is expanding more slowly than before.
Some indicators further suggest that workers have been claiming a smaller share of the overall economic pie during the past decade.
Inequality has continued to increase, meaning that a larger portion of overall economic resources is commanded by a smaller segment of the population.
Economic mobility across generations isn’t particularly high in the United States, and it hasn’t been increasing.
In the following parts of this series, we’ll discuss Tarullo’s take on each of these challenges. We’ll also look at solutions he suggested during the speech that could alter the scene and help the economy move back to a historically high growth rate.
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