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Thursday, February 17, 2011

Federal Reserve Raises USA GDP Projection for 2011 (Charts) *Unemployment rate estimate lowered for 2011*

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Federal Reserve Building 1937


FOMC Meeting Minutes and Summary of Economic Projections
"Economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions"

FOMC Statement The related FOMC Statement was released January 26, 2011 and reviewed in a previous post, Federal Reserve: USA Economic Recovery Is Continuing (GDP Chart) *Insufficient for significant improvement in labor market*. This post reviews the actual Minutes and Summary of Economic Projections, which are an addendum to the minutes, and were released on February 16, 2011.

From "Modest" to "Slow" to "Insufficient" The Federal Reserve previously, for months, utilized the wording and theme of "modest" and "moderate" regarding economic activity, recovery, and growth. In November, this was changed to "slow": slow pace of recovery in output, slow pace of recovery in employment, disappointingly slow progress in FOMC objectives. In December and January, economic activity, recovery, and growth was "insufficient". As always, the FOMC statement is carefully worded.


Summary of Economic Projections
GDP Projections Raised for 2011
Unemployment Rate Projections Lowered for 2011

The short story on the release of the FOMC meeting minutes was the economic recovery is going to take a few years (up to 5 or 6 years).
2011 GDP projection (January) was increased to 3.4%-3.9% from the November projection of 3.0%-3.6%
* 2011 Unemployment Rate projection (January) was decreased to 8.8%-9.0% from the November projection of 8.9%-9.1%

Participants' Views on Current Conditions and the Economic Outlook "In the discussion of intermeeting developments and their implications for the outlook, the participants generally expressed greater confidence that the economic recovery would be sustained and would gradually strengthen over coming quarters. Their more positive assessment reflected both the tenor of the incoming economic data and information received from business contacts since the previous meeting. Spending by households picked up noticeably in the fourth quarter, business outlays continued to grow at a moderate pace, and conditions in labor and financial markets improved somewhat over the intermeeting period. Although business contacts remained somewhat cautious about the economic outlook, they generally indicated greater optimism regarding their own prospects for sales and hiring than at the time of the previous meeting. While participants viewed the downside risks to their forecasts of economic activity over the projection period as having diminished, their assessment of the most likely outcomes for economic activity and inflation over the projection period was not greatly changed. Most participants raised their forecast of real GDP growth in 2011 somewhat and continued to anticipate stronger growth this year than in 2010, with a further gradual acceleration during 2012 and 2013. The unemployment rate was still projected to decline gradually over the forecast period but to remain elevated. Total inflation was still expected to remain subdued, and core inflation was projected to trend up slowly over the next few years as economic activity picks up but inflation expectations remain well anchored."

GDP Projection (Summary of Economic Projections)
Table 1. Economic projections of Federal Reserve Governors and Reserve Bank presidents, January 2011
The central tendency excludes the three highest and three lowest projections for each variable in each year.



Unemployment Rate Projection (Summary of Economic Projections)
Table 1. Economic projections of Federal Reserve Governors and Reserve Bank presidents, January 2011
The central tendency excludes the three highest and three lowest projections for each variable in each year.




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