LEILA FADEL, HOST:
The U.S. economy is closing the year on a positive note. Here's Federal Reserve Chairman Jerome Powell earlier this month.
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JEROME POWELL: The U.S. economy has just been remarkable. In these international meetings that I attend, this has been the story, how well the U.S. is doing. If you look around the world, there's just a lot of slow growth and continuous struggle with inflation.
FADEL: But doing better isn't the same thing as doing well. As the year comes to a close, let's bring in David Wessel. He's the director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. Good morning.
DAVID WESSEL: Good morning, Leila.
FADEL: So let's start with an economic report card for 2024. How would you sum up the year?
WESSEL: Say, overall, it was a good year, as Chair Powell said. The economy grew. The inflation rate came down without a recession or a sharp rise in unemployment. Of course, prices remained well above pre-pandemic levels, and polls tell us that that was a major issue for voters in November. The stock market had a great year. The S&P 500 was up more than 25 points. Unemployment did rise a little bit but it remains near historic lows. And interestingly, hiring was surprisingly strong. Employers added lots of workers, partly because there were a lot more immigrants than we had anticipated, so there were people to hire. Now, consumer sentiment surveys, when you ask people how they feel, they were pretty negative. But when you look at what they actually did, spending was fairly strong, in part because incomes, at least for most people, rose faster than inflation list this year.
FADEL: So should we expect the same in 2025?
WESSEL: Well, I hope so. I mean, predicting the future is risky. But the economy does go into 2025 with a lot of momentum but also a lot of uncertainty. Now, some of it has to do with what's going on in the rest of the world. Our major export markets aren't doing very well. There's tension everywhere from the South China Sea to Ukraine to the Middle East.
FADEL: Yeah.
WESSEL: But a lot has to do with what policies President Trump and the Republican Congress actually pursue, and there's a lot of uncertainty about that.
FADEL: Yeah. But many Americans voted for Donald Trump based on his economic promises. Which of President-elect Trump's policies are likely to have the biggest effect on the economy?
WESSEL: Now, that's a good question. So one is, what does President Trump actually do with tariffs? Is this a threat in order to get something out of our trading partners, or is he really going to pursue the most aggressive tariff increases, which would mean higher prices and probably slower growth in the United States? What does he do on immigration? If he really throws out a lot of people or closes the door to immigration, we will have fewer workers, and we need workers. And then there's the federal budget. How much will Congress cut taxes? What will that do to the deficit? How will markets react to that? Will they push up interest rates and so forth? But I think there's another factor, as well. It's sort of what happens to our institutions, to the rule of law. A lot of what goes on in economy is not well measured by dollars and cents, it's by people's attitudes. And there's some risk that this will be a year of a lot of turmoil and chaos, and that wouldn't be good for business.
FADEL: So a lot of questions and uncertainty in Washington. But, David, if you had to pick one economic sign you're watching closely that could really matter to Americans, what would that be outside of this issue in Washington?
WESSEL: It would be how fast productivity grows. Productivity is the amount of goods and services that we produce for every hour of work. It's the reason we enjoy a higher standard of living than our grandparents, even though most of us work fewer hours. Now, the U.S. enjoyed a spurt of productivity growth in the late 1990s and early 2000s, but it's been sluggish for the past two decades. Small increases in productivity growth - just a few tenths of a percentage point of year - make a big difference over a decade or two or a generation. And there are some hints - and I do mean hints - that the U.S. is enjoying another uptick in productivity growth. Perhaps it's the reorganization of the economy following the pandemic. Perhaps it's the early impact of artificial intelligence. Maybe it's a blip. But if it's not, it would mean the economy can grow faster without generating inflation or higher interest rates. And that would certainly be a very good thing, especially for the next generation.
FADEL: David Wessel directs the Hutchins Center at the Brookings Institution. Thank you, David.
WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.
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