Wednesday, December 16, 2020

FOMC Projections and Press Conference

by Calculated Risk on 12/16/2020 02:08:00 PM

Statement here.

Fed Chair Powell press conference video here starting at 2:30 PM ET.

Here are the projections.

Note that GDP decreased at a 5.0% annual rate in Q1, decreased at a 31.4% annual rate in Q2, and increased at 33.1% annual rate in Q3. This leaves real GDP down 3.5% from Q4 2019.

Wall Street forecasts are for GDP to increase at a 5% to 6% annual rate in Q4.  These forecasts would put the economy down around 2.1% to 2.3% Q4-over-Q4.  The FOMC revised up their GDP projections for 2020, 2021 and 2022.


GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1
Projection Date2020202120222023
Dec 2020-2.5 to -2.23.7 to 5.03.0 to 3.52.2 to 2.7
Sept 2020-4.0 to -3.03.6 to 4.72.5 to 3.32.4 to 3.0
1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 6.7% in November, down from 6.9% in October, and might decrease more in December.  This will put the unemployment rate for Q4 below the lower end of the September projections.   

Note that the unemployment rate doesn't remotely capture the economic damage to the labor market.  Not only are there 10.7 million people unemployed, and 4.1 million people have left the labor force since January.  And millions more are being supported by various provisions of the CARES Act - that still hasn't been renewed and is schedule to expire on December 26th.

The unemployment rate was revised down for all years.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2
Projection Date2020202120222023
Dec 20206.7 to 6.84.7 to 5.43.8 to 4.63.5 to 4.3
Sept 20207.0 to 8.05.0 to 6.24.0 to 5.03.5 to 4.4
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of October 2020, PCE inflation was up 1.2% from October 2019.    The projections for inflation were revised up slightly.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1
Projection Date2020202120222023
Dec 20201.21.7 to 1.91.8 to 2.01.9 to 2.1
Sept 20201.1 to 1.31.6 to 1.91.7 to 1.91.9 to 2.0

PCE core inflation was up 1.4% in October year-over-year.  Projections for core inflation were revised up slightly.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1
Projection Date2020202120222023
Dec 20201.41.7 to 1.81.8 to 2.01.9 to 2.1
Sept 20201.3 to 1.51.6 to 1.81.7 to 1.91.9 to 2.0