The American economy is operating at its full potential for the first time in a decade, thanks to the rise in economic output since President Donald Trump’s election.
Stronger economic growth in the second and third quarters of 2017, when the economy grew by more than a three percent annualized rate, pushed economic output higher than what the Congressional Budget Office refers to as “potential gross domestic product.”
In the chart below, the blue line represents the potential output of the economy–basically, what the economy could produce at a high level of investment and employment. The red line represents actual economic output. The space between the lines is the “output gap”–the goods and services we could have been producing but were not:
Note that potential GDP is not a ceiling. The economy ran above potential from 1964 to 1969 and for briefer periods more recently. And this rise to capacity could be short-lived, particularly if political events conspire to stymie the president’s agenda.