The Fed: Nothing Surprising from FOMC, Including Uncertainty About the Future

By at 16 December, 2020, 5:51 pm

by Raymond J. Keating-

The Federal Open Market Committee announced on the afternoon of December 16 that it would maintain its loose money stance – a policy position that the Fed has maintained since late summer of 2008. That is, for more than a dozen years.

That certainly wasn’t surprising. The Fed and many Fed watchers seem to think that loose money without precedent, including maintaining a federal funds rate of 0 percent and ¼ percent, somehow makes a difference for the entrepreneurs and small businesses that drive our economy, and have been suffering throughout this pandemic economy. How that actually works remains, admittedly, something of a mystery to this economist.

The Fed didn’t break any new ground in summing up the state and immediate future of the economy:

“The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”

It’s illustrative to look at the economic projections also released by the Fed. While the median economic projections or the central tendency of projections tend to gain the most attention, it’s more revealing to look at the range of projections from Federal Reserve Board members and Federal Reserve Bank presidents.

The full range of projections captures the uncertainty that governs monetary policymaking. So, projections for real GDP growth in 2020 ranges from -3.3 percent to -1.0 percent; with the range of projections for subsequent years coming in at between 0.5 percent to 5.5 percent for 2021; 2.5 percent to 4.0 percent for 2022, and 2.0 percent to 3.5 percent for 2023.

Are such wide ranges of projections on economic growth of any value? It’s hard to see how. But it does tell us how little the Fed knows about where the economy is headed – again, though, that’s not exactly surprising.

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



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