Feds call for backup in battle to spur the economy

Gold declined a third time in four sessions Monday amid rising speculation that the Federal Reserve will raise U.S. interest rates this year.

Fed policymakers will meet today and Wednesday at a time the country is trying to figure out why the outlook for growth has slowed. While lifting rates is a sign the Fed members consider the U.S. economy healthy enough to weather higher shortterm rates, there’s also concern throughout the nation that the jobs recovery is probably approaching its end. The U.S. is unlikely to continue adding 200,000 jobs a month, as it did over the past five years, and growth remains mired at barely above 2 percent. It may even decline as leftover slack in the labor market evaporates and the Fed is forced to tighten rates further to prevent a surge in inflation.

That’s prompting officials to examine slow growth in the U.S. Analysts say the slow economy is not simply a hangover from the financial crisis and the recession that followed. Rather, it stems from negative trends in demographics, productivity and other long-term factors. And when it comes to turning those forces around, monetary policy has very little to offer.

“There’s been a lot of talk over the last few years about stimulus,” said James Bullard, president of the Federal Reserve Bank of St. Louis. “Stimulus is something you’re doing to try to smooth things out over a couple of quarters, and that isn’t how we need to be thinking about the U.S. economy. We badly need a growth agenda.”

Bullard isn’t alone. More officials are making it clear with more frequency and with greater urgency that they need help from elected lawmakers. In June, Fed Chair Janet Yellen told the Senate Banking Committee that fiscal policy had “not played a supportive role.”

Nor are such appeals confined to the U.S. They’ve been a common refrain from officials at the European Central Bank.

So what is it that Fed policy can’t fix?

Demographics. There are fewer workers as a percentage of the overall population. This strains social welfare budgets and also lowers the potential growth rate of the economy. In the U.S., the proportion of citizens 65 or older reached 15 percent in 2014, up from 9.5 percent in 1964, according to data from the Organization for Economic Cooperation and Development. The 2014 figures were 19 percent in the European Union and 25 percent in Japan.

Spurring higher birth rates might require incentives, like paid maternity leave or childcare benefits. Increasing legal immigration is another answer, though it would run headlong into anti-immigrant sentiment evident in the U.S. and in the U.K.’s vote to leave the European Union.

“More could be done to ex-

amine policies that could ensure an inflow of workers to strengthen and grow the U.S. workforce,” Dallas Fed president Robert Kaplan said recently. “Appropriate immigration policy is a key element of this effort.”

Productivity: Another way to grow GDP is to produce more for every hour worked. U.S. GFP growth has averaged 0.6 percent since 2010 compared with 2.3 percent from 1948 to 2009, according to the Bureau of Labor Statistics. Similar erosion shows up in Europe and Japan.

Some economists believe productivity growth is fine, we’re simply failing to measure accurately the impact of new technologies. Most, however, see a real problem that calls for greater improvements in education and training to develop a workforce with higher skills, as well as for public and private spending on research and development to create technologies that improve productivity in the workplace.

Corporate investment: Despite historically low interest rates and historically large piles of cash, business fixed investment has risen at an average rate of 6.3 percent over the past six years compared with 8.6 percent in the nine high growth years through 2000.

Businesses cite the low expected rate of return on investments and uncertainty over regulation and taxation. Others suspect tighter credit standards in the wake of the financial crisis caused by lenders wishing to be more cautious, or forced to be so by new financial regulations.

Infrastructure: Former U.S. Treasury Secretary Lawrence Summers has made perhaps the loudest argument for the U.S. government to renew the country’s aging infrastructure.