Fed's GDP and Unemployment Projections: Who Believes Them?

Mish

In addition to its blather about interest rates, the Fed also made numerous economic projections.

Economic Projections

Please consider the Economic Projections of FOMC Participants under their individual assumptions of appropriate monetary policy, September 2020.

Fed's GDP, Unemployment, PCE Inflation Projections

Fed's GDP, Unemployment, PCE Inflation Projections 2020-09

GDP Projection

The Fed believes GDP will only contract 3.7% in 2020 then rebound 4% in 2021, and 3% in 2022.

Do you believe this?

Unemployment Projection

The Fed believes the Unemployment Rate will be 7.6% in 2020, 5.5% in 2021, and 4.6% in 2022.

Do you believe this?

PCE Inflation Projection

The Fed believes Core Personal Consumption Expenditure inflation (excluding food and energy) will be 1.5% in 2020, 1.7% in 2021, and 1.8% in 2022.

Do you believe this?

GDP Poll

Unemployment Poll

PCE Poll

My Take

  • GDP: I will take the under. Way under. Much of the rebound was due to $600 pandemic stimulus checks that expired on July 25. This will be a huge headwind going forward.
  • Unemployment: I am leery of games with the participation rate and labor force but I will go with higher.
  • PCE : This one is humorous. For months, the Fed has committed not only to 2% but letting inflation run hotter than expected for some time to make up for needed lost inflation. Yet the Fed admits it will not hit its targets until 2023. PCE inflation, as measured, is a joke. So perhaps the Fed is on target.

Also see Fed's Blather as Expected, No Hikes Through 2023.

Mish

Comments (23)
No. 1-10
Mish
Mish

Editor

There were several prior comments, lost while recreating this post.

RonJ
RonJ

"Magic suddenly happens in 2024"

2024 is an election year.

Carl_R
Carl_R

Moore inflation predictor, which is just a mathematical extension, has inflation at 3.5% by April, when they year over year numbers will be compared to a time when oil was near $0 a barrel. That seems very reasonable to me.

Eddie_T
Eddie_T

I'll always take the under on GDP. That's a no-brainer in a low-growth world.

On unemployment.....I have faith in the ability of the BLS to fake it. Remember how they gamed unemployment numbers post 2008? The numbers kept looking better and better, even when the real unemployment rate was north of 13%. My guess is that the pandemic will do way more to push people into retirement than the 2008 crash. Not just people who who work for wages either.

On inflation....the metrics have been so amended as to produce a useless number.
It begs the question.....if the cost of food and housing and insurance keep going up precipitously, will it matter to most of us regular people whether the Fed says inflation is 1%, 1.5%, 2%?......We still have to hedge. We hedge for real inflation, not Fed targets, right?

Does it matter that the velocity of money is falling right through the floor? That chart looks pretty ugly.

The Fed is playing a game of musical chairs......low interest rates keeps the asset bubbles inflated and the music playing. If it stops, bad things will surely happen.

Scooot
Scooot

I don’t believe any economic predictions, there’s too many unknown variables. However I also don’t think they’ve taken into account the likelihood of further damage to the economy from another Covid flare up. Mainland Europe are starting to see this happen, they’re a little ahead of us in the UK but now we are starting to see the numbers rise. Restrictions are getting tighter again as the virus takes hold. America is a little bit behind us so maybe in a couple of months a similar trend will take hold there.

Second time around it seems to be worse in some ways as people know what to expect. As well as the obvious health impact financial support is not likely to be so widespread but more targeted so people are more fearful of the economic consequences. It’s not very good for moral.

Roger_Ramjet
Roger_Ramjet

2024? That's when all of the debt accumulated on the Fed's balance sheet is suddenly forgiven/cancelled.

Casual_Observer
Casual_Observer

All these economic statistics and predictions are predicated on what happens with that Covid thing. We can pretend it is not there. Deaths above last year at this point is close to 250k.

Jojo
Jojo

Unintended consequences?

How the Fed’s Quick Action May Have Given Congress Cover for Inaction
By doing its job of stabilizing the financial system, it has reduced the sense of urgency for lawmakers to help ordinary Americans.
By Neil Irwin
Published Sept. 15, 2020

Lance Manly
Lance Manly

For inflation I like the Cleveland Fed 16 percent trimmed-mean CPI:
A weighted average of one-month inflation rates of components whose expenditure weights fall below the 92nd percentile and above the 8th percentile of price changes.

Makes far more sense the core PCE

Nickelodeon
Nickelodeon

I think a reasonable outlook on the vast majority of gov't statistics is to consider that they are issued for the benefit of gov't itself.

They are not issued for the benefit of the average Joe. Taking that outlook, which I can't see as being reasonably debated, should cast doubt on every single statistic issued by any gov't funded alphabet soup agency. Yes, we can get into the nuts and bolts of why the GDP, CPI or various unemployment stats are ridiculous, but it's kind of unnecessary in the big picture if you simply gauge intent.

Gov't is a monopoly on violence/control and it's going to do whatever it can to maintain that monopoly, including use of it's court apologia to reinforce it's supposed competence to the average Joe.


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