Factbox: Fed staff forecasts from FOMC minutes

Wed Jan 8, 2014 3:10pm EST

(Reuters) - The following are the Federal Reserve's staff forecasts as contained in the minutes of recent Federal Open Market Committee meetings:

DEC. 17-18 FOMC: Minutes released on January 8:

"In the economic projection prepared by the staff for the December FOMC meeting, the forecast for growth in real gross domestic product (GDP) in the second half of this year was revised up a little from the one prepared for the previous meeting, as the recent information on private domestic final demand-particularly consumer spending-was somewhat better, on balance, than the staff had anticipated. The staff's mediumterm forecast for real GDP growth was also revised up slightly, reflecting a small reduction in fiscal restraint from the recent federal budget agreement, which the staff assumed would be enacted; a lower anticipated trajectory for longer-term interest rates; and higher paths for equity values and home prices. Those factors, in total, more than offset a higher path for the foreign exchange value of the dollar. The staff continued to project that real GDP would expand more quickly over the next few years than it has this year and would rise significantly faster than the growth rate of potential output. This acceleration in economic activity was expected to be supported by an easing in the effects of fiscal policy restraint on economic growth, increases in consumer and business sentiment, continued improvements in credit availability and financial conditions, a further easing of the economic stresses in Europe, and still-accommodative monetary policy. The expansion in economic activity was anticipated to slowly reduce resource slack over the projection period, and the unemployment rate was expected to decline gradually to the staff's estimate of its longer-run natural rate.

"The staff's forecast for inflation was quite similar to the projection prepared for the previous FOMC meeting. The near-term forecast for inflation was revised down slightly to reflect some recent softer-than-expected data. The staff continued to forecast that inflation would be modest, on net, through early next year but higher than its low level in the first half of this year. The staff's projection for inflation over the medium term was essentially unchanged. With longer-run inflation expectations assumed to remain stable, changes in commodity and import prices expected to be measured, and slack in labor and product markets persisting over most of the projection period, inflation was projected to be subdued through 2016.

"The staff viewed the uncertainty around the projection for economic activity as similar to its average over the past 20 years. Nonetheless, the risks to the forecast for real GDP growth were viewed as tilted to the downside, reflecting concerns that the extent of supply-side damage to the economy since the recession could prove greater than assumed; that the tightening in mortgage rates since last spring could exert greater restraint on the housing recovery than had been projected; that economic and financial stresses in emerging market economies and the euro area could intensify; and that, with the target federal funds rate already near its lower bound, the U.S. economy was not well positioned to weather future adverse shocks. However, the staff viewed the risks around the projection for the unemployment rate as roughly balanced, with the risk of a higher unemployment rate resulting from adverse developments roughly countered by the possibility that the unemployment rate could continue to fall more than expected, as it had in recent years. The staff did not see the uncertainty around its outlook for inflation as unusually high, and the risks to that outlook were viewed as broadly balanced."

OCT. 29-30 FOMC: Minutes released on November 20:

"In the economic projection prepared by the staff for the October FOMC meeting, the forecast for growth in real gross domestic product (GDP) in the near term was revised down somewhat from the one prepared for the previous meeting, primarily reflecting the effects of the federal government shutdown and some data on consumer spending that were softer than anticipated. In contrast, the staff's medium- term forecast for real GDP was revised up slightly, mostly reflecting lower projected paths for the foreign exchange value of the dollar and longer-term interest rates, along with somewhat higher projected paths for equity prices and home values. The staff anticipated that the pace of expansion in real GDP this year would be about the same as the growth rate of potential output but continued to project that real GDP would accelerate in 2014 and 2015, supported by an easing in the effects of fiscal policy restraint on economic growth, increases in consumer and business sentiment, further improvements in credit availability and financial conditions, and accommodative monetary policy. Real GDP growth was projected to begin to slow a little in 2016 but to remain above potential output growth. The expansion in economic activity was anticipated to slowly reduce resource slack over the projection period, and the unemployment rate was expected to decline gradually.

"The staff's forecast for inflation was little changed from the projection prepared for the previous FOMC meeting. The staff continued to expect that inflation would be modest in the second half of this year, but higher than its level in the first half. Over the medium term, with longer-run inflation expectations assumed to remain stable, changes in commodity and import prices expected to be relatively small, and slack in labor and product markets persisting over most of the projection period, inflation was projected to run somewhat below the FOMC's longer-run inflation objective of 2 percent through 2016.

"The staff continued to see a number of risks around the forecast. The downside risks to economic activity included the uncertain effects and future course of fiscal policy, concerns about the outlook for consumer spending growth, and the potential effects on residential construction of the increase in mortgage rates since the spring. With regard to inflation, the staff saw risks both to the downside, that the low rates of core consumer price inflation posted earlier this year could be more persistent than anticipated, and to the upside, that unanticipated increases in energy or other commodity prices could emerge."

SEPT. 17-18 FOMC: Minutes released on October 9:

"In the economic forecast prepared by the staff for the September FOMC meeting, the projection for real GDP growth in the second half of this year was revised down a little from the one prepared for the previous meeting. The staff's forecast for real GDP over the medium term also was revised down somewhat, reflecting higher projected paths for both longer-term interest rates and the foreign exchange value of the dollar, along with slightly lower projected paths for equity and home prices. The staff still anticipated that the pace of expansion in real GDP this year would only moderately exceed the growth rate of potential output but continued to forecast that real GDP would accelerate in 2014 and 2015, supported by an eventual easing in the effects of fiscal policy restraint on economic growth, increases in consumer and business sentiment, further improvements in credit availability and financial conditions, and accommodative monetary policy. In 2016, real GDP growth was projected to begin to edge down toward the growth rate of potential output. Over the projection period, the expansion in economic activity was anticipated to slowly reduce the slack in labor and product markets, and the unemployment rate was expected to decline gradually.

"The staff's forecast for inflation was little changed from the projection prepared for the previous FOMC meeting. In the near term, the staff continued to project that inflation would be modest in the second half of this year but higher than the readings posted in the first half. Over the medium term, with longer-run inflation expectations assumed to remain stable, changes in commodity and import prices expected to be modest, and resource slack persisting over most of the projection period, inflation was forecast to be subdued through 2016.

"The staff viewed the uncertainty around the forecast for economic activity as similar to its normal level over the past 20 years. However, the risks were viewed as skewed to the downside, reflecting concerns about the economic effects of the recent tightening in U.S. financial market conditions, the resolution of federal fiscal policy issues in the coming months, the economic and financial stresses in the EMEs, and the ability of the U.S. economy to weather potential future adverse shocks. The staff did not see the uncertainty around its outlook for inflation as unusually high, and the risks were viewed as balanced."

JULY 30-31 FOMC: Minutes released on August 21:

"The data received since the forecast was prepared for the previous FOMC meeting suggested that real GDP growth was weaker, on net, in the first half of the year than had been anticipated.3 Nevertheless, the staff still expected that real GDP would accelerate in the second half of the year. Part of this projected increase in the rate of real GDP growth reflected the staff's expectation that the drag on economic growth from fiscal policy would be smaller in the second half as the pace of reductions in federal government purchases slowed and as the restraint on growth in consumer spending stemming from the higher taxes put in place at the beginning of the year diminished. For the year as a whole, the staff anticipated that the rate of growth of real GDP would only slightly exceed that of potential output. The staff's projection for real GDP growth over the medium term was essentially unrevised, as higher equity prices were seen as offsetting the restrictive effects of the increase in longer-term interest rates. The staff continued to forecast that the rate of real GDP growth would strengthen in 2014 and 2015, supported by a further easing in the effects of fiscal policy restraint on economic growth, increases in consumer and business confidence, additional improvements in credit availability, and accommodative monetary policy. The expansion in economic activity was anticipated to lead to a slow reduction in the slack in labor and product markets over the projection period, and the unemployment rate was expected to decline gradually.

"The staff's forecast for inflation was little changed from the projection prepared for the previous FOMC meeting. The staff continued to judge that much of the recent softness in consumer price inflation would be transitory and that inflation would pick up somewhat in the second half of this year. With longer-run inflation expectations assumed to remain stable, changes in commodity and import prices expected to be modest, and significant resource slack persisting over the forecast period, inflation was forecast to be subdued through 2015.

"The staff continued to see numerous risks around the forecast. Among the downside risks for economic activity were the uncertain effects and future course of fiscal policy, the possibility of adverse developments in foreign economies, and concerns about the ability of the U.S. economy to weather potential future adverse shocks. The most salient risk for the inflation outlook was that the recent softness in inflation would not abate as anticipated."

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