Boston Fed President Eric Rosengren gave opening remarks at the Federal Reserve Bank of Boston’s 60th Economic Conference: The Elusive “Great” Recovery: Causes and Implications for Future Business Cycle Dynamics. The full text and charts are available here.

Rosengren explored some of the facts that have made this economic recovery unusual, including subdued growth in real GDP, an unemployment rate that despite tepid growth has fallen faster than many expected, and inflation lingering below the Federal Reserve’s 2 percent target.

Understanding why this recovery has been different is important for policymakers, Rosengren said. “Understanding the sources of the difference will shape expectations going forward, and views on how to calibrate policy.”

Rosengren called this recovery “notably weaker” than the previous two recoveries (from the recessions in 1991 and 2001). The pairing of slower, sustained real GDP growth with a relatively rapid decline in the unemployment rate is one of the “clear puzzles” of the recovery, he said. 

Rosengren noted that the falling unemployment rate has also been accompanied by falling labor force participation.  Also, the higher saving rate may suggest different saving behavior stemming from the Great Recession.  “Should this pattern persist, it has implications going forward for consumption patterns and the economy more broadly,” he said. 

The real federal funds rate in the current recovery, Rosengren observed, also differs markedly from previous recoveries.  Reflecting the depth of the Great Recession, the real federal funds rate has been significantly lower, and consistently negative, in contrast to the two earlier recoveries. 

Turning to asset prices, Rosengren said that anomalies in this recovery are leaving an imprint on only some financial asset classes.  Price to earnings ratios for stocks, and price to rent for residential real estate, are only somewhat elevated – and are well below previous peaks in these series.  In contrast, Rosengren observed that 10-year Treasury rates and commercial real estate capitalization rates are unusually low relative to the past.

“This recovery has been full of surprises, most of which have not been good,” Rosengren said.  

“While one must always be cautious about assuming that current trends reflect something different from historical experience, it is important to consider whether this time has indeed been different.”

If it has, Rosengren concluded, then the lessons from this recovery – perhaps an understanding of a “new normal” environment – may very well impact how we should be thinking about monetary policy going forward.