According to CBO’s August 2015 estimate of potential GDP, the current output gap is 3.2% (log terms); using the WSJ November survey mean growth rates, even by the end of 2016, output will still be 2.2% below potential.
Figure 1: Real GDP (blue), Wall Street Journal mean forecast (red), potential GDP (gray), all in billion of Ch.2009$ SAAR. Figures are cumulative losses. NBER defined recession dates shaded gray. Left axis is a log scale. Source: BEA 2015Q3 advance, CBO, An Update to the Budget and Economic Outlook: 2015-2025 (August 2015), WSJ November survey, NBER, and author’s calculations.
Even using the highest forecasted growth rate (after 20% trimming), the gap is 1.6% (that forecast is from Ian Shepherdson of Pantheon Economics). Increasing the policy rate in December, which seems to be a done deal, is unlikely to mean a faster reversion to potential. The mean forecast implies an additional cumulative amount of lost output of 0.5 trillion Ch.2009$ in the five quarters between 2015Q4 and 2016Q4.
Of course, the CBO estimate is just an estimate. The OECD (November) estimate for 2015 is 2.0% of potential GDP, while the IMF’s (October) is 1.6%. Both estimates of the (absolute value of the) output gap are smaller than the CBO’s; on the other hand, using information from actually reported inflation suggests a much greater degree of slack than these production function approaches.