US: FOMC Forecasts


Wed Mar 18 13:00:00 CDT 2015

Highlights
The Fed lowered its forecasts for the unemployment rate but also for GDP growth and inflation. The Fed appears to either be willing to accept lower inflation or acknowledge that labor force participation is declining. The lower GDP and inflation number support the Fed's dovish statement today.

The latest Fed forecasts for the economy show slightly improved near-term numbers for real GDP and the unemployment rate. Headline inflation has been cut notably in the short term-likely due to lower oil prices.

Change in real GDP
March projection:
2015: 2.3 to 2.7 %
2016: 2.3 to 2.7 %
2017: 2.0 to 2.4 %
longer run: 2.0 to 2.3 %
December projection:
2014: 2.3 to 2.4 %
2015: 2.6 to 3.0 %
2016: 2.5 to 3.0 %
2017: 2.3 to 2.5 %
longer run: 2.0 to 2.3 %

Unemployment rate
March projection:
2015: 5.0 to 5.2 %
2016: 4.9 to 5.1 %
2017: 4.8 to 5.1 %
longer run: 5.0 to 5.2 %
December projection:
2015: 5.2 to 5.3 %
2016: 5.0 to 5.2 %
2017: 4.9 to 5.3 %
longer run: 5.2 to 5.5 %

PCE inflation
March projection:
2015: 0.6 to 0.8 %
2016: 1.7 to 1.9 %
2017: 1.9 to 2.0 %
longer run: 2.0 %
December projection:
2015: 1.0 to 1.6 %
2016: 1.7 to 2.0 %
2017: 1.8 to 2.0 %
longer run: 2.0 %

Core PCE inflation
March projection:
2015: 1.3 to 1.4 %
2016: 1.5 to 1.9 %
2017: 1.8 to 2.0 %
longer run: NA
December projection:
2015: 1.5 to 1.8 %
2016: 1.7 to 2.0 %
2017: 1.8 to 2.0 %
longer run: NA

Definition
The Fed now releases economic projections four times a year (March, June, September, and December). Traditionally, the Fed forecasts covered GDP, the PCE price index, and the civilian unemployment rate. However, the forecast report additionally now includes forecasts for the appropriate timing of the next change in the fed funds rate and the expected fed funds rate at the end of the next two years. As of March 20, 2013, the forecasts are released at the same time as the FOMC statement which is 2:00 p.m. ET and 30 minutes prior to the Fed chairman's press conference which addresses the forecasts and Fed policy in general. The forecasts are a composite of individual forecasts by each Fed governor and each District president and cover two to three years out on an annual basis. The GDP, inflation, and unemployment numbers are published as a "central tendency" and also as a range. The central tendency is an average of the forecasts after the highest and lowest forecasts are removed. The range shows the highest and lowest forecasts for these indicators.

Description