As the economy continues to recover in the wake of the financial crisis that hit a decade ago, it may never again reach the output levels experienced before the crash, according to a new study from the Federal Reserve Bank of San Francisco.
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The data suggests that the crisis, which nearly collapsed the U.S. banking system, has “persistently lowered output” by about 7 percentage points and, as a result, the earning power of all Americans will be reduced.
“This is a large number: In dollar terms, it represents a lifetime income loss in present-discounted value terms of about $70,000 for every American,” officials wrote.
Researchers also estimate that the U.S. economy won’t recover these large output losses and it may never again revert to previous growth rates.
The Congressional Budget Office (CBO) predicted on Monday that GDP would hit 3.1 percent this year, in large part due to the implementation of the Tax Cuts and Jobs Act. The White House is more optimistic: President Trump last week suggested that third-quarter growth “could be in the fives,” which would lift the growth rate for the year.
But 2019 is more uncertain. The CBO expects GDP growth to slow to 2.4 percent next year, and between 2023 and 2028, the agency forecasts an annualized growth rate of about 1.7 percent.
Experts do not yet have a firm understanding as to why large financial shocks can persistently affect output. The San Francisco Fed speculates it could be attributed to “highly peculiar behavior of economies with financial frictions” or that financial distress affects the expenditures of companies, even potentially preventing the creation of start-ups.
U.S. banks, for example, tightened lending in the aftermath of the crisis which made it more difficult for consumers to obtain business loans, as well as mortgages.