SMLL - Output Gap: The Most Important Question For The Economy
The output gap is a critical concept in economics that measures the real economy today relative to trend potential.
Trend potential is judged by expected labor force growth and expected productivity growth, published by the non-partisan Congressional Budget Office, "CBO."
The output gap is an extremely important visual. When the economy is below trend potential, monetary policy is tight, and there is disinflationary pressure in the economy. When the economy is above trend potential, monetary policy is loose and inflationary pressure will start building.
Output Gap
Source: Bloomberg
Business owners and consumers make borrowing and