The Fed’s Depressing Economic Projections

By at 12 June, 2024, 11:47 pm

by Raymond J. Keating –

The Federal Reserve Open Market Committee (FOMC) decided to leave interest rates unchanged on June 12, while also declaring that it would continue “reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.” Coupled with the positive inflation report for May from the Bureau of Labor Statistics, this amounts to a welcome combination.

And then there’s the FOMC’s declaration that “economic activity has continued to expand at a solid pace.”

Really? Hmmm. What does that mean?

Well, if we look at the accompanying economic projections released with the FOMC statement, one is reminded that the Fed continues to serve up economic forecasts that assume continued U.S. under-performance.

Of course, economic projections beyond the next quarter or two aren’t worth much. However, they do reveal the views or outlooks of those offering those projections.

And the range of real economic growth projections from Federal Reserve Board members and Federal Reserve Bank presidents runs at:

● 1.4 percent to 2.7 percent for 2024

● 1.5 percent to 2.5 percent for 2025

● 1.7 percent to 2.5 percent for 2026

● And, 1.6 percent to 2.5 percent for the longer run

What’s missing here? Any projection at 3.0 percent or better. And yet, real annual U.S. GDP growth has averaged 3.3 percent during the post-WWII era. So, these Fed projections for the economy are depressing.

Are these Fed projections wrong? Only time will tell.

However, if U.S. policymakers fail to deal with economic reality by refusing to implement a pro-growth agenda – featuring, for example, low taxes, a light regulatory touch, free trade, restrained growth in government spending, welcoming immigration reforms, and sound monetary policy focused on price stability – then the Fed’s assumptions for an ongoing under-performing economy will likely prevail.

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, The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist and The Weekly Economist III: Another 52 Quick Reads to Help You Think Like an Economist.


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