The Fed and the “Goldilocks” Economy
GDP growth has recovered to its historical average, job growth is strong, unemployment low, and inflation moderate—a scenario New York Federal Reserve Bank President John Williams has described as a “Goldilocks economy.”
The pro-growth turn of economic policy since the 2016 election has economic performance finally recovering as the Federal Reserve originally predicted after the recession. The Fed had projected a rebound with annual real GDP growth reaching upwards of 5 percent, only to see it failing to reach even 3 percent during the Obama years.
After the new Congress and Administration began, the Fed raised its GDP forecast and did so again after passage of the Tax Cuts and Jobs Act (Figure 1). In the first half of this year, GDP growth averaged 3.2 percent at an annualized rate.
The Fed had repeatedly projected that inflation would rise toward its 2 percent target only to find it falling short. This year, inflation is rising as desired and is reaching the target (Figure 2).
After its August 1 meeting, the Federal Open Market Committee stated that the labor market has continued to strengthen and business fixed investment as well as household spending have grown strongly.
New York Federal Reserve Bank President John Williams said in May, "I feel this is pretty much a Goldilocks economy," and in July, Federal Reserve Chair Jerome Powell said, “I sleep pretty well on the economy right now.”
 Board of Governors of the Federal Reserve System. https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
 FOMC statement, 8/1/2018, https://www.federalreserve.gov/newsevents/pressreleases/monetary20180801a.htm
 CNBC Interview, 5/4/2018. https://www.cnbc.com/2018/05/04/inflation-may-overshoot-the-feds-2-percent-target-john-williams.html
 “Fed Chief Sees Rate Increases on Track,” Wall Street Journal, 7/13/2018. http://online.wsj.com/public/resources/documents/print/WSJ_-A002-20180713.pdf