Fed Lowers Forecasts for Growth, Employment in 2011 and 2012Joshua Zumbrun
Federal Reserve officials lowered their forecasts for growth and employment this year and next, underscoring the Federal Open Market Committee’s statement today that the recovery “is continuing at a moderate pace, though somewhat more slowly” than previously expected.
U.S. central bankers also said inflation, excluding food and energy, will be somewhat higher than previously forecast. At a two-day meeting that concluded earlier today in Washington, they said the pace of recovery is likely to “pick up over coming quarters.” Fed Chairman Ben S. Bernanke will hold a press conference at 2:15 p.m. Washington time to discuss the economic outlook and monetary policy.
The central bank released its forecasts after recent economic data pointed to a weakening economy. Companies boosted payrolls in May at the slowest pace since June 2010, Labor Department figures released June 3 showed. Autos sold last month at the weakest pace since September, retail sales dropped for the first time in 11 months and manufacturing grew at the slowest pace since September 2009.
The Fed will complete a $600 billion bond purchase program as scheduled this month, according to the Federal Open Market Committee’s policy statement today. The Fed also said it will keep interest rates near zero for an “extended period” and continue to reinvest the proceeds of maturing assets.
U.S. central bankers said the economy will expand 2.7 percent to 2.9 percent this year, down from forecasts ranging from 3.1 percent to 3.3 percent in April. It was the second time this year that Fed officials lowered their forecasts for growth.
For 2012, Fed officials expect the world’s largest economy to grow 3.3 percent to 3.7 percent, according to their central tendency forecasts. In April, their predictions ranged from 3.5 percent to 4.2 percent. Their projections for 2013 and the longer run were little changed.
Fed officials predict the unemployment rate will average 8.6 percent to 8.9 percent in the final three months of 2011, compared with 8.4 percent to 8.7 percent projected in April. Their estimate for unemployment at the end of 2012 was in a range of 7.8 percent and 8.2 percent, compared with 7.6 percent to 7.9 percent in April.
In its statement today, the Federal Open Market Committee said it expects “the pace of recovery to pick up over coming quarters and the unemployment rate to resume its gradual decline toward levels that the Committee judges to be consistent with its dual mandate” for stable prices and full employment.
A measure of inflation that strips out food and energy will rise 1.5 percent to 1.8 percent this year, slightly higher than the 1.3 percent to 1.6 percent estimated in April. That measure will rise 1.4 percent to 2 percent in 2012, they said, compared with an earlier forecast of between 1.3 percent and 1.8 percent.
The forecasts are the views of the Fed’s 12 regional bank presidents and five Washington-based governors. The central tendency forecasts exclude the three highest and three lowest predictions for each measure of the economy.
Officials update their predictions at the Fed’s two-day meetings, typically held in January, April, June and November, the same meetings at which Bernanke holds his press conferences. The rationale for the forecasts will be provided with the minutes for the Fed’s meeting, which will be released July 13.
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