Fed's 'golden path' to soft-landing led by productivity boom

WALL STREET ECONOMISTS are looking for the post-Covid boom in productivity to continue, which would sustain strong growth without a pickup in inflation. Federal Reserve officials are intrigued by the idea, but a little bit skeptical.

- STEVE MATTHEWS

Productivity growth has averaged 3.9% the last three quarters, more than triple the rate seen in the decade prior to the pandemic. When workers are more efficient, firms can generate more money to raise wages without charging higher prices, so monetary policy can be a bit less concerned about inflation.

However, productivity figures which the Bureau of Labor Statistics measures as output per hour-tend to be volatile. So the recent trend, while encouraging and supportive of a soft landing, has led Fed officials to be cautious in their optimism.

"I got my fingers crossed that that continues," Chicago Fed President Austan Goolsbee said Wednesday. The "shockingly good" trend has supported wages being higher and the economy leading to a "golden path" of continued growth and low inflation, he said.

The longer-run productivity trend may be running "modestly higher" or around 0.2 percentage points more than pre-Covid, Richmond Fed President Thomas Barkin estimated this month, adding he hopes that it turns out to be more.