FRBSF Economic Letters

Economic analysis for a general audience

Kevin J. Lansing


The “natural” rate of interest—the real rate consistent with full use of economic resources and steady inflation near the Fed’s target level—is an important benchmark for monetary policy. Current estimates suggest that this rate is near zero, but it is expected to rise gradually in the years ahead as real GDP returns to its long-run potential. If the historical statistical relationship between the growth rate of potential GDP and the natural rate holds true in the future, then a 2% long-run growth rate would imply a long-run natural rate of around 1%.

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Analysis of current economic developments and the outlook

SF Fed Forecast Preview

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Working Papers

The latest in economic research

John G. Fernald

What is the sustainable pace of GDP growth in the U.S.? A plausible point forecast has GDP per capita rising well under 1% per year in the longer run, with overall GDP growth a little over 1½%. The main drivers of slow growth are educational attainment and demographics. First, rising educational attainment will add less to productivity growth than historically. Second, as baby boomers age, employment will rise more slowly than population. This forecast assumes productivity growth is relatively “normal,” if modest—in line with its general pace since 1973. An upside risk is another burst of IT-induced productivity growth.

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