Fed officials haven't had a lot to say about the slump in productivity growth but, just as the upsurge in productivity growth in the 1990s was crucial in allowing the Fed to leave rates lower for longer, the slump now is a reason why the Fed shouldn't delay hiking rates much longer. Productivity was broadly unchanged in 2014 and, given the strength of employment and the apparent weakness of activity, it is on course to contract sharply in the first quarter of this year. If this is more than just a temporary blip, it means that potential economic growth could be even lower than 2%. It would also mean that any pick-up in wage growth from the current 2% pace would threaten to push core price inflation above the Fed's 2% target.
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