left: Jeff Carr, president and senior economist, Economic & Policy Resources; Qingbin Wang, assistant professor of economics, Johnson & Wales University; Greg Bird, economist, New Hampshire Center for Public Policy Studies; and Peter Gunther, senior research fellow, Connecticut Center for Economic Analysis, at the New England Economic Partnership’s recent Annual Economic Outlook Conference.

When the Federal Open Market Committee holds its final meeting of the year starting on Dec. 12, it is widely expected to increase the federal funds rate, beginning a cycle that could include three more rate hikes in 2018.

As the FOMC has begun to gradually raise the federal funds rate, which currently sits at 1.25 percent, there has been large-scale debate over whether the increases are justified. Inflation has stayed below the Fed’s 2 percent target, which typically calls for rates to remain low, while the labor market has continually tightened, which normally justifies the opposite.

Even though current inflation and the labor market are requesting contradictory actions, the expected rate hike likely reflects the belief that inflation will pick up, while unemployment is expected to dip further, said Daniel Cooper, senior economist and policy advisor at the Federal Reserve Bank of Boston.

“Policymakers face a conundrum,” Cooper said at the New England Economic Partnership’s annual economic outlook conference in November, adding that he was speaking for himself and not for the Boston Fed or the FOMC.

However, the FOMC seemed to agree with Cooper’s analysis at its last meeting on Oct. 31 and Nov. 1.

“Many participants judged that the economy was operating at or above full employment and anticipated that the labor market would tighten somewhat further in the near term, as GDP was expected to grow at a pace exceeding that of potential output,” read the FOMC’s minutes.

Real GDP has been trending upward since the second quarter of 2016, a sign that inflation may start to tick up, Cooper said.

Yet even with the projected rate hike this week and three more in 2018, the unemployment rate, which was 4.1 percent for the U.S. in October, is expected to continue to decline in the short-term, he said.

Unemployment Spirals Down

Aside from Connecticut, every state in New England is projected have an unemployment rate below 4 percent in 2021, according to a presentation given by Alan Clayton-Matthews, an associate professor at Northeastern University, who is also on NEEP’s board of directors.

New England’s unemployment rate overall is projected to be 4.1 percent and the U.S. is projected to have a 5 percent unemployment rate in 2021.

New Hampshire currently has the tightest labor market in New England at 2.7 percent as of October; that rate is only supposed to increase marginally to 2.8 percent in 2021.

“We are running out of people to employ,” said Greg Bird, an economist at the New Hampshire Center for Public Policy Studies.

New Hampshire has recovered well from the financial crisis, with businesses producing more goods and services, and workers having more money in their pockets.

New Hampshire saw larger percentage increases in private sector employment in health care, manufacturing, finance and insurance, and transportation and warehousing between 2015 and 2016 than the rest of New England, not including Massachusetts.

However, the big gains have been isolated to only four counties in the state, and the prime working-age (25- to 64-year-olds) population has been on the decline since 2011.

“There could be a hiring slowdown,” said Bird, adding that he thought it would be difficult to attract workers from Massachusetts, given the wage differential between the two states.

What It Comes Down To

Overall, the economy is good, chugging along at a slow, but steady pace that is starting to yield di vidends.

Even states in New England not seen as economic powerhouses are projected to improve growth.

Rhode Island has recovered all jobs lost since the recession, according to Qingbin Wang, assistant professor of economics at Johnson & Wales University. Real GDP, which grew .8 percent in Rhode Island between 2011 and 2016, is projected to grow 1.5 percent between 2016 and 2021, he said.

Despite its issues, Connecticut also recovered all jobs lost during the recession earlier this year.

“This is as good as it gets,” said Jeff Carr, president and senior economist at the Vermont-based firm Economic & Policy Resources, adding that the economic expansion since the financial crisis can set an all-time record if it keeps its current pace until mid-2019. “That’s truly extraordinary.”

Ultimately, as economists at the conference testified, available data certainly shows that the labor market will continue to tighten, whereas inflation, despite some positive trends, is much more uncertain.

“Is this a transitory slow down or something more permanent?” said Cooper. “The data has been quite soft since March, and appears to be transitory.”

An attendee of the conference suggested to Cooper that perhaps the Federal Reserve no longer has the ability to control inflation in these abnormal economic times.

“I think it’s premature to say that,” responded Cooper, adding that “if you think you can’t control inflation, the focus may shift to what you can control.”