February 18, 2015 / 7:08 PM / 4 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 recent Federal Open Market Committee meetings:

JAN 27-28 FOMC: Minutes released on Feb. 18:

“The staff estimated that real GDP growth in the second half of 2014 was faster than in the projection prepared for the December meeting, primarily reflecting stronger-than-expected consumer spending. Even so, real GDP was still estimated to have risen more slowly in the fourth quarter than in the third quarter, as changes in both net exports and federal government purchases appeared likely to have subtracted from real GDP growth in the fourth quarter following large positive contributions in the previous quarter.

“The staff’s outlook for economic activity over the first half of 2015 was revised up since December, in part reflecting an anticipated boost to consumer spending from declines in energy prices. However, the forecast for real GDP growth over the medium term was little revised, as the greater momentum implied by recent spending gains and the support to household spending from lower energy prices was about offset by the restraint implied by the recent appreciation of the dollar. The staff continued to forecast that real GDP would expand at a modestly faster pace in 2015 and 2016 than it did in 2014 and that it would rise more quickly than potential output, supported by increases in consumer and business confidence and a pickup in foreign economic growth, as well as by a U.S. monetary policy stance that was assumed to remain highly accommodative for some time. In 2017, real GDP growth was projected to begin slowing toward, but to remain slightly above, the rate of growth of potential output. The expansion in economic activity over the medium term was anticipated to lead to a slow reduction in resource slack, and the unemployment rate was expected to decline gradually and to move slightly below the staff’s estimate of its longer-run natural rate for a time.

“The staff’s forecast for inflation in the near term was revised down, as further sharp declines in crude oil prices since the December FOMC meeting pointed toward a somewhat larger transitory decrease in the total PCE price index early this year than was previously projected. In addition, the incoming data on consumer prices apart from those for energy showed a somewhat smaller rise than anticipated. The staff’s forecast for inflation in 2016 and 2017 was essentially unchanged, with inflation projected to remain below the Committee’s 2 percent objective. Nevertheless, inflation was projected to reach 2 percent over time, with inflation expectations in the longer run assumed to be consistent with the Committee’s objective and slack in labor and product markets anticipated to fade.

“The staff viewed the uncertainty around its projections for real GDP growth, the unemployment rate, and inflation as similar to the average over the past 20 years. The risks to the forecast for real GDP growth were viewed as tilted a little to the downside, reflecting the staff’s as-sessment that neither monetary policy nor fiscal policy was well positioned to help the economy withstand adverse shocks. At the same time, the staff viewed the risks around its outlook for the unemployment rate as roughly balanced. The downside risks to the forecast for inflation were seen as having increased somewhat, partly reflecting the recent soft monthly readings on core inflation.”

DEC 16-17 FOMC: Minutes released on Jan. 7:

“In the staff forecast prepared for the December FOMC

meeting, real GDP growth in the second half of 2014

was higher than in the projection for the October meeting,

largely reflecting stronger-than-expected data for PCE. Nevertheless, real GDP growth was anticipated

to slow in the fourth quarter as both net exports and

federal government purchases — important positive contributors

to real GDP growth in the third quarter—were

anticipated to drop back. The staff’s medium-term forecast

for real GDP growth was revised up a little on net.

The projected path for oil prices was lower, and the trajectory

for equity prices was a bit higher. And although

the projected path of the dollar was revised up, the staff

revised down its estimate of how much the appreciation

of the dollar since last summer would restrain projected

growth in real GDP. The staff continued to forecast that

real GDP would expand at a faster pace in 2015 and

2016 than it had this year and that it would rise more

quickly than potential output, supported by increases in

consumer and business confidence and a pickup in foreign

economic growth, along with monetary policy that

was assumed to remain highly accommodative for some

time. In 2017, real GDP growth was projected to begin

slowing toward, but to remain above, the rate of potential

output growth as the normalization of monetary policy

was assumed to proceed. The expansion in economic

activity over the medium term was anticipated to

slowly reduce resource slack, and the unemployment

rate was expected to decline gradually and to temporarily

move slightly below the staff’s estimate of its longer-run

natural rate.

“The staff’s forecast for inflation in the near term was revised

down to reflect the further large energy price declines

since the October FOMC meeting, which were anticipated

to lead to a temporary decrease in the total PCE

price index late this year and early next year. The staff’s

inflation projection for the next few years was essentially

unchanged; the staff continued to project that inflation

would move up gradually toward, but run somewhat below,

the Committee’s longer-run objective of 2 percent.

Nevertheless, inflation was projected to reach the Committee’s

objective over time, with longer-run inflation

expectations assumed to remain stable, prices of energy

and non-oil imports forecast to begin rising next year,

and slack in labor and product markets anticipated to diminish

slowly.

“The staff viewed the uncertainty around its projections

for real GDP growth, the unemployment rate, and inflation

as similar to the average over the past 20 years. The

risks to the forecast for real GDP growth and inflation

were viewed as tilted a little to the downside, reflecting

the staff’s assessment that neither monetary policy nor

fiscal policy was well positioned to help the economy

withstand adverse shocks. At the same time, the staff

viewed the risks around its outlook for the unemployment

rate as roughly balanced.”

OCT 28-29 FOMC: Minutes released on Nov. 19:

“The information on economic activity received since the

staff prepared its forecast for the September FOMC

meeting was close to expectations, and therefore, the

staff’s projection for real GDP growth over the remainder

of the year was little revised. However, in response

to a further rise in the foreign exchange value of the dollar,

a deterioration in global growth prospects, and a decline

in equity prices, the staff revised down its projection

for real GDP growth a little over the medium term.

Even with the slower expansion of economic activity in

this projection, real GDP was still expected to rise faster

than potential output in 2015 and 2016, supported by

accommodative monetary policy and a further easing of

the restraint on spending from changes in fiscal policy;

in 2017, real GDP growth was projected to step down

toward the rate of potential output growth. As a result,

resource slack was anticipated to decline steadily, albeit

at a slightly slower rate than in the previous projection,

and the unemployment rate was expected to gradually

improve and to be at the staff’s estimate of its longerrun

natural rate in 2017.

“The staff’s forecast for inflation this quarter and early

next year was reduced in response to further declines in

crude oil prices, but the forecast for inflation over the

medium term was only a touch lower. Consumer price

inflation was projected to be lower in the second half of

this year than in the first half and to remain below the

Committee’s longer-run objective of 2 percent over the

next few years. With resource slack projected to diminish

slowly and changes in commodity and import prices

anticipated to be subdued, inflation was projected to rise

gradually and to reach the Committee’s objective in the

longer run.

“The staff continued to view the uncertainty around its

projections for real GDP growth, the unemployment

rate, and inflation as similar to the average over the past

20 years. The risks to the forecast for real GDP growth

and inflation were seen as tilted to the downside, reflecting

recent financial developments and concerns about

the foreign economic outlook, as well as the staff’s assessment

that neither monetary policy nor fiscal policy

appeared well positioned to help the economy withstand

adverse shocks. At the same time, the staff continued to

view the risks around its outlook for the unemployment

rate as roughly balanced.”

SEPT 16-17 FOMC: Minutes released on Oct. 8:

“In the economic forecast prepared by the staff for the

September FOMC meeting, the projection for growth in

real gross domestic product (GDP) in the second half of

this year was revised down slightly from the one prepared

for the previous meeting, primarily because of a

somewhat weaker near-term outlook for consumer

spending. The staff’s medium-term forecast for real

GDP was also revised down a little, reflecting a higher

projected path for the foreign exchange value of the dollar

along with slightly smaller projected gains for home

prices. The staff still anticipated that the pace of real

GDP growth in 2015 and 2016 would exceed the growth

rate of potential output, supported by continued increases

in consumer and business confidence, the further

easing of the restraint on spending from changes in

fiscal policy, additional improvements in credit availability,

and a pickup in foreign economic growth. In 2017,

real GDP growth was projected to begin slowing toward,

but to remain above, the rate of potential output

growth. The expansion in economic activity over the

projection period was anticipated to steadily reduce resource

slack, and the unemployment rate was expected

to decline gradually and temporarily move slightly below

the staff’s estimate of its longer-run natural rate toward

the end of the period.

“The staff’s near-term forecast for inflation was a little

lower than the projection prepared for the previous

FOMC meeting, reflecting recent readings on core consumer

price inflation that were lower than anticipated

and declines in oil prices that were faster than expected,

but the forecast for inflation over the medium term was

little changed. The staff continued to project inflation

to be lower in the second half of this year than in the

first half and to remain below the Committee’s longerrun

objective of 2 percent over the next few years. With

longer-term inflation expectations assumed to remain

stable, resource slack projected to diminish slowly, and

changes in commodity and import prices expected to be

subdued, inflation was projected to rise gradually and to

reach the Committee’s objective in the longer run.

Overall, the staff’s economic projection for the September

meeting was quite similar to the forecast presented

at the June meeting, when the FOMC last prepared a

Summary of Economic Projections (SEP). The staff’s

September projection showed a slightly higher path for

the unemployment rate, a bit lower real GDP growth,

and essentially no change to inflation compared with its

June forecast.

“The staff continued to view the uncertainty around its

projections for real GDP growth, the unemployment

rate, and inflation as similar to the average over the past

20 years. The risks to the forecast for real GDP growth

were still seen as tilted a little to the downside, as neither

monetary policy nor fiscal policy was viewed as well positioned

to help the economy withstand adverse shocks.

At the same time, the staff viewed the risks around its

outlook for the unemployment rate and for inflation as

roughly balanced.”

Reuters Washington Newsroom

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