U.S. Expansion Becomes Second-Longest on Record


The current United States economic expansion is the second longest in the nation’s history.  The streak became the second-longest on record days before the Federal Reserve Bank is set to decide, in a two-day meeting, whether to increase interest rates or leave them where they are.

One factor that is said to have helped the expansion is that the central bank has been borrowing less since the 2009 recession. It is believed the Fed will refrain from raising rates this time, but will raise them gradually at a later date.

The United States will still achieve the largest expansion in its history if it can keep the current pace steady until July of 2019, according to research by the National Bureau of Economic Research.  Possible trade war with China and how policy makers manage money after the inflation rate reached a targeted-2% rate in March may serve as possible hurdles to the milestone.

According to Gus Faucher, chief economist at PNC, “Absent a shock like a trade war, we’re likely to become the longest expansion. This is an economy that has been growing steadily at an OK, not fantastic pace. Things are well balanced,” he said.

Business investment is often cited as a main factor for the continued growth, although it’s unclear what effect President Trump’s heightening of trade tensions with China may have.  The picture becomes more uncertain when one considers that U.S. ally Canada, as well as many European allies, are being brought into the trade conflict with China as well.

One area of the economy that has seen lackluster growth during the expansion is wage growth.  It is believed, however, that a tight labor market may lead to increasing wages in the near future.  Finding qualified workers has become such a problem that local governments have begun offering individuals financial incentives to relocate to small cities and towns to fill jobs at local firms.

Despite glowing remarks from economists, some also worry that the increase in spending and the tax cuts the Trump administration implemented late last year may cause the economy to overheat. While both are believed to be prime ways to spur growth, they could accelerate growth and increase inflation, which would cause the federal reserve to pump the brakes on the economy by raising interest rates.

“It’s laying the foundation for the next recession,” said Moody Analytics chief economist Mark Zandi.  “By mid-2020, we will be most vulnerable to the next recession. It’s almost like you read the economic textbook and did the opposite of what it said to do.  It’s a real experiment — and in my view, it won’t end up well.”

Photo by OTA Photos via Flickr