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Economic growth is set to strengthen in 2017 and 2018, as an assumed fiscal stimulus boosts the economy and the effects of dollar appreciation, declines in energy investment and a substantial inventory correction abate. Employment has risen steadily, although the pace is expected to ease somewhat in 2017. A pick-up in wages will further support growth, offsetting somewhat sluggish external demand.
Monetary policy has remained very accommodative, consistent with inflation running below target. As economic slack is eliminated and pressure on resources emerges, policy rates will gradually increase. Monetary policy needs to tread a cautious path. Some measures of inflation expectations have edged down and persistently undershooting the inflation target could entrench lowered expectations. On the other hand, sustained low interest rates create financial market risks, which may require stronger macro-prudential action. More supportive fiscal policy eases the burden on monetary policy.
Fiscal policy was broadly neutral in 2016. The new Administration will begin implementing its policy priorities next year and in this context the fiscal stance is projected to become more expansionary as public spending and investment rise, while taxes are cut. This will provide a boost to the economy, particularly in 2018. Action will be needed to ensure public finances are sustainable in the medium term.
Economic Survey of the United States (survey page)