A lot can change in 56 days. In late April, Federal Reserve economists had relatively cheerful economic projections. But then May happened, and it became clear that the economy had taken a step back. Consequently, the Fed's new projections (.pdf), released Wednesday afternoon, indicate a weaker recovery.

Let's start with the range of the Fed's GDP projections, from April to June:

fomc gdp 2011-06.png

You can see that, particularly in the near-term, the red and orange lines (June projections) are below the dark and light green lines (April projections). For 2011, the Fed's growth expectations dropped by about four-tenths of a percentage point for the projections' central tendency. The projections for 2012 also worsened.

Here's the range of unemployment rate projections:

fomc unemp 2011-06.png

This time around, you see the red and orange lines (June projections) above the dark and light green lines (April projections). From a central tendency standpoint, the Fed now expects unemployment for the year to be about two-tenths of a percentage point higher than they did two months ago. This more pessimistic view carries on through 2012. Yet, their June statement suggests that the the Fed isn't very concerned about unemployment.

It is, however, a little more concerned about inflation. It sees prices rising:

fomc inflation 2011-06.png

Here, the range of projections has narrowed, but the low range has risen a bit. In any case, inflation is expected to be relatively low, but not too low.

The Fed lowered its economic outlook this month, as these charts clearly show. Yet it doesn't feel a need for more monetary stimulus at this time. It believes the current obstacles holding back the recovery are transitory and expects the economy to grow more briskly once their influence wears off. But as the Fed's worsened projections show, central bankers must also believe that these headwinds will have a lasting impact on the U.S. economy.

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