On the Economy: The Fed’s Perpetually Gloomy Forecasts

By at 21 March, 2019, 8:42 am

by Raymond J. Keating-

The Federal Reserve issued its latest statement on monetary policy on March 20, along with its economic projections.

In its statement, the Fed summed up it take on the economy this way: “Information received since the Federal Open Market Committee met in January indicates that the labor market remains strong but that growth of economic activity has slowed from its solid rate in the fourth quarter. Payroll employment was little changed in February, but job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Recent indicators point to slower growth of household spending and business fixed investment in the first quarter. On a 12-month basis, overall inflation has declined…”

So, the FOMC left its targeted range on the federal funds rate unchanged at 2-1/4 to 2-1/2 percent, and apparently there’s little stomach for fed funds hikes in the near term. Of course, it also needs to be noted that the fed funds rate remains very low historically speaking (see the following chart).

Source: Federal Reserve Bank of St. Louis, FRED

We’ll have to see what this means in terms of the Fed’s recent effort (starting in late 2017) to rein in the monetary base, which, of course, exploded in unprecedented fashion for more than a decade starting in late summer 2008.

As for what might be ahead of us on the economy, the median projection from the FOMC shows expectations for real GDP growth of only 2.1 percent in 2019, followed by 1.9 percent in 2020, 1.8 percent in 2021, and a longer-run average annual growth rate of 1.9 percent. However, inflation is expected to stay tame at about 2 percent.

Despite March 20 being the first day of spring, the Fed continues with its gloomy economic forecast. Indeed, it’s hard to take the Fed’s economic outlook seriously as it never seems to vary from expectations for a rather dismal slow-growth economy as far as the eye can see.

Of course, economic forecasting is a game fraught with uncertainty. But the Fed seems quite certain that the U.S. economy is doomed to slow growth. I’m not so pessimistic. In many ways, U.S. entrepreneurs, businesses, investors and workers remain a pro-growth bunch. Things, of course, go astray when politicians and government – from Congress to the Fed – impose misguided costs and uncertainties that send growth off the rails.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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