The Pressures of a Full Employment Economy

I spent most of last week fighting with a model.  Before anyone starts googling “Nerdy Economist in Fashion Week Brawl”, I should clarify.  I was fighting with a macroeconomic model that insisted on telling me something I didn’t believe.  To be precise, it was projecting that, given the recent and projected pace of U.S. economic growth, the unemployment rate would slide to 3.0% by the end of 2025.  This I don’t believe for reasons I’ll explain.  But the changes in assumptions necessary to produce a more reasonable answer can tell us a lot about the likely path of economic growth, inflation, interest rates, corporate profits and the dollar over the next two years with significant implications for financial markets and investing.