US economy may be poised for a supply-side surprise

Washington

WILL 2018 be the year the supply side of the economy roars back to life? If so, the Federal Reserve's expectations for inflation may once again be met with disappointment. But be wary of believing this would portend a dovish year for policy. A supply-side rebound would likely trigger upward pressure on the long end of the yield curve, giving the Fed more room to raise rates.

The central bank has a pessimistic view of the economy's fundamental capacity for growth. According to the Summary of Economic Projections, policy makers hold a median estimate of longer-run growth of just 1.8 per cent. Low labour force growth and productivity account for this anaemic number.