FOMC On GDP, Unemployment and Inflation


The Federal Open Market Committee's November meeting minutes (.pdf) were released this afternoon. I skimmed them found nothing too surprising said. But what I did find pretty interesting was the committee members' economic projections for 2010 and beyond for GDP, unemployment and inflation. These are, after all, some of the most brilliant economists around, so their estimates are notable.

These predictions are all neatly summed up in several charts in Figure 1 of the minutes. I'll break it up so we can look at each separately.

fomc 11-2009 - 1.PNG

No real surprise here for 2009, as they all believe GDP growth will fall somewhere just below zero. But they're pretty optimistic about 2010, with growth estimates ranging from just below 2% to over 4%. 2011 is even more optimistic, with the central tendency of projections between 3% and 5%. They have a slightly better expectation for 2012. I am a little surprised how positive the FOMC is about GDP. I have read numerous accounts indicating relatively low (2% to 3%) GDP growth over the next several years. While some committee member might agree with that, the consensus appears far more optimistic.

fomc 11-2009 - 2.PNG

What I find most notable about unemployment is the vast range for 2010, from a little over 8% to over 10%. But there is a tight central tendency in the mid-9% region. That agrees with most predictions I've read that quite high unemployment will prevail throughout 2010. But they show this coming down relatively gradually in 2011 and 2012. In 2011, the central tendency still has unemployment in the 8%'s. Then in 2012, it will hover around 7%. That's some seriously prolonged high unemployment.

fomc 11-2009 - 3.PNG

For those unfamiliar with the acronym, PCE is personal consumption expenditures. The FOMC predicts relatively low inflation for 2010, under 2%. But 2011 is fascinating, as it's a huge range, even within the central tendency. The broader range for that year goes from around 0.5% to 2.5%. That's a little bit worrying, as it appears to indicate that the FOMC doesn't really know what's going to happen with inflation. But it apparently does feel confident in its ability to keep inflation well below 3% through 2012.

fomc 11-2009 - 4.PNG

Then there's the Core PCE, which excludes some more volatile items like food and energy. It looks largely the same as PCE, but a slightly lower.

All in all, the FOMC appears far more optimistic about GDP and inflation than much of what I read in the blogosphere and hear on the business news channels. That's of some comfort, because they're some of the smartest professional economists around. But when it comes to unemployment, that positive attitude disappears. Even the most optimistic committee member sees unemployment hovering no lower than 6% by the end of 2011, while their most pessimistic member sees it close to 8% at that time.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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