PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

The Fed Signals Change in Monetary Policy

By at 13 December, 2023, 5:51 pm

by Raymond J. Keating –

The Federal Reserve announced in its latest FOMC statement that it would hold its targeted federal funds rate at a range between 5.25 percent and 5.5 percent.

While the current range stands at a 22-year high, the Fed hasn’t touched rates now in three consecutive meetings.

The Fed summed up the state of the economy this way:

“Recent indicators suggest that growth of economic activity has slowed from its strong pace in the third quarter. Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.”

Looking ahead, in the Fed’s accompanying economic projections, the median and central tendency projections point to the Fed to start cutting the federal funds rate in 2024.

All of this, obviously, is relevant for small business owners and for investors. But it’s also worth taking a look at what Federal Reserve Board members and Federal Reserve Bank presidents are expecting regarding economic growth and inflation.

Anemic Economic Growth Projection

On the growth front, the median projections are looking for real GDP growth to slow from 2.6 percent in 2023 to 1.4 percent in 2024, followed by 1.8 percent in 2025 and 1.9 percent in 2026.

Meanwhile, PCE inflation is projected to go from 2.8 percent in 2023 to 2.4 percent in 2024, 2.1 percent in 2025 and 2.0 percent in 2025.

If the Fed’s projections were to be on the mark – a very big “if” – then this would be very good news on inflation, and very bad news on economic growth.

Indeed, these economic growth projections are truly grim, with growth expected to run at about half, or less than half, of the real rate of growth at which the U.S. economy normally has grown at in the post-World War II era. When are our elected officials going to put aside political games and anti-growth agendas, and instead get serious about implementing pro-growth policies?

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist and The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist.

 

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