WASHINGTON Feb 20 The weakest U.S. economic
recovery in recent memory could be damaging the country's
long-term growth potential, according to a number of Federal
Policymakers at the central bank expressed such concerns at
their Jan. 29-30 policy meeting, according to minutes of the
meeting released on Wednesday.
"A number of (meeting) participants thought that the growth
of potential output had been reduced in recent years, possibly
in part because restrictive financial conditions and weak
economic activity in the aftermath of the financial crisis had
reduced investment, business formation, and the pace of adoption
of new technologies," the minutes said.
"Many of these participants worried that, should the economy
continue to operate below potential for too long, reduced
investment and underutilization of labor could further undermine
the growth of potential output over time," the report added.
Before the Great Recession of 2007-2009, economists
generally pegged potential U.S. growth around 2.5 percent.
Lower potential growth implies less unused capacity in the
economy, and therefore might call for tighter monetary policy
than would otherwise be the case. At the same time, for those
who believe the policy response to the economy's troubles has
been too meek, the threat of lower potential output could serve
as an impetus for more stimulus, not less.
Some economists have argued that a slumbering U.S. labor
market has fallen prey to longer-term structural issues, like
skills and geographical mismatches, that make the problem less
amenable to help from monetary policy.
However, Fed Chairman Ben Bernanke, while acknowledging some
possible structural effects, has argued that the weakness of the
business cycle is the primary cause of the country's elevated
7.9 percent jobless rate.