| FOMC Forecasts |
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Highlights
The latest Fed forecasts cut its expectations for GDP growth in 2012 and 2013, lowered headline inflation, and bumped up the projections for unemployment.
Regarding the timing of the next firming in policy, 3 participants indicated it should be in 2012 (versus 3 at the April meeting), 3 in 2013 (was 3), 7 in 2014 (was 7), 6 in 2015 (was 4). The FOMC has two additional members with two newly installed Fed governors. Though not stated which FOMC participant voted for what timing, it is likely the two new governors voted for the 2015 period for the next rate move up.
Slower economic growth appears to have bumped up the forecast unemployment rate and lower energy costs cut into headline inflation. The Fed still expects economic growth to improve in coming quarters.
Central Tendency Forecasts
Change in real GDP
Current projections: 2012: 1.9 to 2.4 percent; 2013: 2.2 to 2.8 percent; 2014: 3.0 to 3.5 percent; longer run: 2.3 to 2.5 percent
April projections: 2012: 2.4 to 2.9 percent; 2013: 2.7 to 3.1 percent; 2014: 3.1 to 3.6 percent; longer run: 2.3 to 2.6 percent
Unemployment rate
Current projections: 2012: 8.0 to 8.2 percent; 2013: 7.5 to 8.0 percent; 2014: 7.0 to 7.7 percent; longer run: 5.2 to 6.0 percent
April projections: 2012: 7.8 to 8.0 percent; 2013: 7.3 to 7.7 percent; 2014: 6.7 to 7.4 percent; longer run: 5.2 to 6.0 percent
PCE inflation
Current projections: 2012: 1.2 to 1.7 percent; 2013: 1.5 to 2.0 percent; 2014: 1.5 to 2.0 percent; longer run: 2.0 percent
April projections: 2012: 1.9 to 2.0 percent; 2013: 1.6 to 2.0 percent; 2014: 1.7 to 2.0 percent; longer run: 2.0 percent
Core PCE inflation
Current projections: 2012: 1.7 to 2.0 percent; 2013: 1.6 to 2.0 percent; 2014: 1.6 to 2.0 percent; longer run: NA
April projections: 2012: 1.8 to 2.0 percent; 2013: 1.7 to 2.0 percent; 2014: 1.8 to 2.0 percent; longer run: NA
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Definition
The Fed now releases economic projections four times a year (March, June, September, and December). Traditionally, the Fed forecasts covered GDP, the PCE price index, and the civilian unemployment rate. However, the forecast report additionally now includes forecasts for the appropriate timing of the next change in the fed funds rate and the expected fed funds rate at the end of the next two years. As of March 20, 2013, the forecasts are released at the same time as the FOMC statement which is 2:00 p.m. ET and 30 minutes prior to the Fed chairman’s press conference which addresses the forecasts and Fed policy in general. The forecasts are a composite of individual forecasts by each Fed governor and each District president and cover two to three years out on an annual basis. The GDP, inflation, and unemployment numbers are published as a “central tendency” and also as a range. The central tendency is an average of the forecasts after the highest and lowest forecasts are removed. The range shows the highest and lowest forecasts for these indicators.
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