[News Terms] Is the Dream of the US 'Goldilocks Economy' Fading?

The U.S. economy, which was expected to experience a 'Goldilocks' scenario, has hit a snag. The growth rate for the first quarter, initially forecasted to be around 2.5% (quarter-on-quarter), came in at a disappointing 1.6%, marking a shockingly low performance.

The Goldilocks economy refers to an ideal economic condition where the economy is neither too hot nor too cold, growing steadily and soundly without significant inflation. The term was first applied to economics in 1992 by David Shulman, an economist at Salomon Smith Barney.

Jerome Powell, Chairman of the U.S. Federal Reserve Board, is holding a press conference after the Federal Open Market Committee (FOMC) meeting on the 20th of last month (local time).
[Image source=AFP Yonhap News]

This expression originates from the name of the girl in the British folk tale 'Goldilocks & the Three Bears.' Goldilocks is a compound of gold and lock, referring to a person with blonde hair. The story depicts Goldilocks happily filling her stomach with the 'just right' soup among the hot soup, cold soup, and just right soup that the bears had left boiling in the forest.

The term Goldilocks became frequently used in economics in the late 1990s. At that time, the U.S. economy enjoyed an unusual boom, achieving over 4% growth for several years while maintaining low unemployment and inflation rates. Advances in new technologies, represented by information technology (IT), improved productivity, enabling consumption expansion, stock price increases, and GDP growth without significant inflationary pressure. Experts referred to this as the 'Goldilocks' or 'Goldilocks economy.'

Recently, there has been speculation that the U.S. might be entering a Goldilocks phase again, maintaining an annual growth rate in the high 2% range. The U.S. GDP only contracted by -2.2% in 2020, the year the COVID-19 pandemic broke out, but then grew by 5.8% in 2021, 1.9% in 2022, and 2.5% in 2023. However, this year, while the first quarter GDP fell short of expectations, the March core Personal Consumption Expenditures (PCE) price index exceeded forecasts at 3.4%, raising concerns in the market about stagflation?a situation of economic stagnation combined with rising prices.