The Cable

Don’t Worry, America: It May Take 22 Years to Get the Economy Humming Again

It could take more than two decades for the U.S. economy to return to normal growth.


U.S. Federal Reserve officials, including Chair Janet Yellen, often talk about a return to so-called normal times, a period when the economy is strong enough that it can continue growing even as interest rates rise. But a new estimate by a leading credit rating agency shows those golden times could be a long way away.

According to Moody’s, the U.S. economy grew an average of 3.5 percent annually in the 60 years before the 2008 economic crisis. That’s no longer the case: In the years since the crash, the economy has grown no faster than 2.7 percent per year

The upshot? “U.S. economic growth may remain well under 3 percent through 2027,” Moody’s said in a research note. “In other words, the wait for a return of at least one year’s worth of the ‘old normal’ in terms of economic growth might be longer than 22 years.”

This statistic is stunning. It means it could take more than two decades to recover from the Great Recession, which is a sign of just how much the mortgage meltdown, followed by the collapse or near-collapse of major banks, has shaken the foundation of the American economy.

If Moody’s is right, it puts Yellen in a tough spot. Late last year, she and her colleagues on the Fed’s Open Market Committee raised the cost of borrowing from the U.S. Central Bank to .25 percent. Rates had been near zero since 2008 and hadn’t gone up since 2006.

Yellen and her Fed colleagues want to continue to raise interest rates in the coming years in order to return to normal. But increases to the cost of loans puts future economic growth at risk, because it’s a disincentive for consumers and businesses to borrow the money they need to make major purchases, start new businesses, or expand existing ones.

The Fed is set to meet next week. According to the CME’s FedTracker tool, which predicts Fed rates increases, there is virtually no chance a new rate hike will be announced. The Moody’s analysis suggests this might be the case for a while.

Photo Credit: Nicholas Kamm/Getty Images

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