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FED Optimistic Forecasts...
Sep 20 ( From The Examiner, CNN News, Washington Post, News to use, Seeking Alpha, USA Today )
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At a news conference, Fed Chairman Ben Bernanke acknowledged the recent pickup in the labor market has continued to improve, with gains in private payroll employment averaging about 200,000 jobs per month over the past six months. Job gains, along with the strengthening housing market, have in turn contributed to increases in consumer confidence and supported household spending.
However, at 7.6 percent, the unemployment rate remains elevated, as do rates of underemployment and long-term unemployment. Overall, the Committee believes the downside risks to the outlook for the economy and the labor market have diminished since the fall, but we will continue to evaluate economic conditions and risks as they evolve.
By year's end, the Fed predicts a slightly brighter job outlook. It expects the unemployment rate to fall to 7.2% to 7.3%, vs. its March forecast of 7.3% to 7.5%.
The central tendency of their projections of the unemployment rate for the fourth quarter of this year is 7.2 to 7.3 percent, declining to 5.8 to 6.2 percent in the final quarter of 2015.
The Fed slightly lowered its economic growth forecast in 2013, saying it expects the economy to grow 2.3% to 2.6% this year vs. its March projection of 2.3% to 2.8%.
In brief participant's projections for economic growth have a central tendency of 2.3 to 2.6 percent for 2013, rising to 2.9 to 3.6 percent in 2015.
Most participants see inflation gradually increasing from its current low level toward the Committee's longer-run objective; the central tendency of their projections for inflation is 1.2 to 1.3 percent for this year and 1.7 to 2.0 percent for 2015.
The Optimistic FED
The big question is whether Fed officials can get it right after years in which they have regularly predicted a stronger economy than the one that materialized. In January 2011, Fed officials predicted that GDP would grow around 3.7 percent that year. It clocked in at 2 percent. In January 2012, they anticipated growth of about 2.5 percent. We ended up with 1.6 percent. ( See below the last Economic Projections of the FED ).
A much more rigorous analysis of Fed official’s forecasts was published in 2007 by researchers at the Fed itself and covered 20 years of historical predictions. It found that fall estimates for how the economy fared that year were off by about 0.6 percentage points. In other words, the Fed was imprecise in estimating how strong overall growth was even in a year that was mostly over. Forecasts for three years into the future missed the mark by about 1.5 percentage points.
In that case, we can understand that the FED want to keep a very accomodative monetary policy until 2015...
As you can see above, in 2009 the Fed was predicting 4.2 percent growth in 2011. But then in 2010 it revised that down to 3.85 percent growth. And in 2011 they revised it further to 2.8 percent growth. And when all was said and done, the economy only grew about 2.4 percent that year. The Fed projected growth almost twice as fast as what actually happened.
Same deal for 2012. The Fed’s first forecast, in 2010, projected 4 percent growth. 2011′s projections reduced that to 3.5 percent growth. 2012 knocked it down to 2.15 percent growth. And the final number was about 2 percent.
Despite signs of an improving economy, the Federal Reserve in their last statement said it will continue to pursue an easy-money policy aimed at holding down long-term interest rates and stimulating growth.
In a statement after a two-day meeting, the Fed said it will keep buying $85 billion a month in Treasury bonds and mortgage-backed securities until the labor market improves substantially, echoing its statements since last fall.
Even if the Fed says that the tapering process was considered starting in Q4 2013...
The leaders of the central bank also released their forecasts for levels of economic growth, unemployment and inflation they expect to see over the coming three years.
Those numbers, offer a glimpse of how much juice they believe the recovery has in it. Lately, most economic data has looked stronger, even as federal budget cuts threaten to hold back growth as 2013 progresses.
The big question is whether Fed officials can get it right after years in which they have regularly predicted a stronger economy than the one that materialized. In January 2011, Fed officials predicted that GDP would grow around 3.7 percent that year. It clocked in at 2 percent. In January 2012, they anticipated growth of about 2.5 percent. We ended up with 1.6 percent.
Let s review in details their current forecast...
As shown by the graph below, we had constantly a very optimistic FED in terms of growth forecast for the past 3 years. What the graph shows, is that the projections have been revised downward regularly...
FED Optimistic Forecasts... $MACRO, $STUDY, $FED