November 19, 2008 / 7:32 PM / 11 years ago

FACTBOX: Fed staff forecasts from FOMC minutes

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

OCT. 28-29 FOMC: Minutes released on November 19, 2008:

“In the forecast prepared for the meeting, the staff lowered its projection for economic activity in the second half of 2008 as well as in 2009 and 2010. Real GDP appeared to have declined in the third quarter, and the few available indicators that reflected conditions following the intensification of the financial market turmoil in mid-September pointed to another decline in the fourth quarter. The declines in stock-market wealth, low levels of consumer sentiment, weakened household balance sheets, and restrictive credit conditions were likely to hinder household spending over the near term. Business expenditures also probably would be held back by a weaker sales outlook and tighter credit conditions. The staff expected that real GDP would continue to contract somewhat in the first half of 2009 and then rise in the second half, with the result that real GDP would be about unchanged for the year. Although futures markets pointed to a lower trajectory for oil prices than at the time of the September meeting, real activity was expected to be restrained by further contraction in residential investment, reduced household wealth, continued tight credit conditions, and a deterioration of foreign economic performance. In 2010, real GDP growth was expected to pick up to near the rate of potential growth, as the restraints on household and business spending from the financial market tensions were anticipated to begin to ease and the contraction in the housing market to come to an end. With growth below its potential rate for an extended period, the unemployment rate was expected to rise significantly through early 2010. The staff reduced its forecast for both core and overall PCE inflation, as the disinflationary effects of the receding cost pressures of energy, materials, and import prices and of resource slack were expected to be greater than at the time of the September FOMC meeting. Core inflation was projected to slow considerably in 2009 and then to edge down further in 2010.”

SEPT. 16 FOMC: Minutes released on October 7, 2008:

“In the forecast prepared for the meeting, the staff left its projection for real GDP growth in the second half of 2008 little changed from the previous meeting, but it marked down its forecast for 2009 slightly. Real GDP was estimated to have increased at a solid pace in the second quarter; however, the available indicators pointed to a sharp deceleration in economic activity in the third quarter. Consumer spending softened appreciably in recent months, and housing construction remained on a steep downtrend. Some of the weakness in the household sector appeared to reflect the ongoing deterioration in the labor market, but the effects of the earlier run-up in oil prices, weakened balance sheets, and restrictive financial conditions also likely put the finances of many households and businesses under pressure. The staff continued to expect that real GDP would advance slowly in the fourth quarter of 2008 and at a faster rate in 2009, but still less than that of its potential. Real GDP growth was expected to pick up to slightly above the rate of potential growth in 2010, as the restraint on household and business spending associated with financial market turmoil gradually eases and the contraction in the housing sector comes to an end. The staff’s outlook for both core and overall PCE inflation over the next two years also changed little. The staff continued to project that core inflation would edge lower in 2009 and 2010 as the prices of imports, energy, and other commodities decelerate and the margin of resource slack remains relatively wide.”

AUG. 5 FOMC: Minutes released on August 26, 2008:

“In the forecast prepared for the meeting, the staff marked down its forecast of real GDP growth in the second half of 2008 and in 2009. Although the increase in real GDP in the second quarter was a bit faster than anticipated at the time of the June meeting, the labor market continued to weaken significantly, financial conditions remained unfavorable, consumer and business confidence was downbeat, and manufacturing activity was contracting. All told, the staff continued to expect that real GDP would rise at less than its potential rate through the first half of next year. Nonetheless, real GDP growth was anticipated to return to its potential rate in the second half of 2009 as housing activity leveled out and financial conditions became less restrictive. Core PCE price inflation was expected to pick up somewhat in the second half of this year, mostly as a result of the upward pressures from this year’s run-ups in prices of energy and imports. Core inflation was then expected to edge down in 2009 as the impetus from prior increases in the prices of imports, energy, and other commodities abated and the margin of slack in resource use widened.”

JUNE 24 to 25 FOMC: Minutes released on July 16, 2008

“In the forecast prepared for the meeting, the staff raised its projection for the growth of real gross domestic product (GDP) for 2008. The available indicators of spending, particularly those for consumption and business investment, suggested that economic activity in the first half of the year had been somewhat firmer than previously expected. The staff projection prepared for the meeting pointed to modest expansion in real GDP in the first half of 2008 followed by a slight slowdown in growth in the second half, when several factors were likely to restrain spending, including lower household wealth, slower real income growth due to sharply higher oil prices, and tight credit conditions. The pace of economic activity was projected to pick up in 2009 as those effects waned and weakness in housing construction abated. Despite this acceleration, the trajectory of economic growth anticipated through 2009 implied noticeable slack in resource utilization.

The staff’s projection for price inflation in core personal consumption expenditures (PCE) for 2008 as a whole was unchanged; recent readings on core PCE inflation were better than anticipated and led the staff to lower its projection for the first half of the year. But some of the recent improvement was seen as reflecting transitory factors, and the forecast of core inflation for the second half of this year and next year was marked up to incorporate the likely pass-through of the recent jumps in the prices of energy and other commodities, and the reversal of these transitory factors. The further large increase in energy prices also prompted an upward revision of the forecast of headline PCE inflation in the second half of 2008, and headline inflation was expected to exceed core inflation by a considerable margin this year. However, in view of a projected leveling-out of energy prices and the anticipated slack in resource utilization, headline inflation was expected to decline considerably in 2009 from its pace in the second half of 2008, and core inflation was forecasted to edge lower.”

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