CAMBRIDGE – The near-term outlook for the US economy has improved, owing to the sharp increase in household wealth in 2013, together with the end of the fiscal drag caused by the increase in tax rates in 2012. The United States now has a chance to raise real (inflation-adjusted) per capita GDP faster than the feeble 1.7% average rate recorded during the four years since growth resumed in the summer of 2009.
Of course, significantly faster GDP growth in 2014 is not guaranteed. For starters, achieving it requires overcoming the negative impact of the jump in long-term interest rates that followed the Federal Reserve’s announcement last June that it would likely end its asset-purchase program this year. Moreover, the cloud of rising budget deficits at the end of the decade – and exploding national debt after that – is also discouraging investment and consumer spending.