The Economy

Yellen Skeptical About Trump’s Growth Target

The Fed chair says the 3% target "would be quite challenging" given sluggish productivity and declining labor force growth.
Matthew HellerJuly 14, 2017

Federal Reserve Chair Janet Yellen appears skeptical that the Trump administration can reach its target for economic growth, citing the sluggishness of worker productivity.

Speaking before a Senate panel on Thursday, Yellen said the 3% GDP target ”is something that would be wonderful if you could accomplish it,” but “I think it would be quite challenging.”

“In the last five years, productivity growth has averaged a half percent. The last decade, something like 1.1 percent,” Yellen told the Senate Committee on Banking, Housing and Urban Affairs, adding that labor-force growth is also on the decline. For the administration to hit its goal, she said, productivity growth would need to rise to “something over 2.”

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President Trump has pledged to boost annual growth to 3%, the average for much of the last 70 years. In a Wall Street Journal op-ed Thursday, Office of Management and Budget director Mick Mulvaney said that goal could be achieved by cutting taxes, reforming welfare programs, investing in infrastructure, initiating new trade deals, and curbing government spending.

But as Reuters reports, “The Fed, the Congressional Budget Office and others feel that an aging population and lagging productivity mean the economy’s potential has downshifted to around 2 percent growth or less — a fact that has profound effects on national wealth as the slower pace compounds over time.”

Pressed by the Senate panel for ideas about boosting economic growth, Yellen said there was “general agreement that there are distortions in the corporate tax code” that could be changed to improve productivity.

Along with tax reform, she would “focus on on training, on education … I would focus on investment both public and private. I would focus on policies that affect the pace of technological change.”

In her Congressional testimony, Yellen also discussed regulatory issues, defending post-crisis reforms but also agreeing that some rules might be too strict. “I believe we have done a great deal since the financial crisis to strengthen the financial system and to make it more resilient,” she told the committee.