In conjunction with the Federal Open Market Committee’s (FOMC) meeting of the Federal Reserve on September 21, every Fed member set projections for interest rates, the unemployment rate, inflation, and GDP.
Personal consumption expenditures inflated
- The Fed wants 2.0 percent inflation in the long term, so every Fed member is predicting 2.0 percent inflation specifically despite the fact that the Fed has missed expectations for a decade.
- I really don’t know where the inflation will be in 2022 or 2023 or in the longer term and neither are they. There are a lot of moving parts with Russia, the midterms, Biden’s energy policy, and Heaven help us if the Democrats can fill the House while adding one seat to the Senate.
- The Fed forecasts the unemployment rate for 2022 at 3.8 percent. This represents an increase of only 0.1 percentage point from now.
- Unlike the vast majority, I don’t think the unemployment rate will rise as much as it normally does in recessions.
- While unemployment rates of 3.8 percent are possible, they are certainly on the very optimistic side.
Gross domestic product
- The Fed has never intentionally anticipated recessions directly and avoided calls for recessions. But where we are right now, their forecasts for GDP for 2022 are beyond wild optimism and mean no recession.
- And there doesn’t seem to be a single recession forecast for 2023.
- What makes 2023 somewhat controversial is the fact that the federal GDP forecast ranges from Q4 to Q4, so technically there could be a short recession in 2023 followed by a recovery in the second half of 2023.
- For 2022, it’s clear. The Fed sees a recovery in the second half, not a recession as the following chart shows.
Real GDP 2021-2022
GDP projection analysis (figures in billions of dollars)
- Real GDP in the fourth quarter of 2021 was 19806
- Real GDP in the second quarter of 2022 was 19699
- For the Fed’s average forecast of 0.2 on an annual basis to occur, fourth-quarter GDP must be 19,846 or higher, a rise of at least 177.
- This means that real GDP will need to rise by 0.90% in the second half. This would match the rise in GDP after Covid.
- On an annual basis, the Fed expects growth of more than 1.8 percent in the second half of 2022.
What is the potential for 1.8 per cent annual growth in the second half alongside expectations of a Fed rate hike?
Dot Plot Show The Fed expects more hikes in 2023 to 4.50 percent
Yesterday, I noticed the dot chart showing that the Fed expects more hikes in 2023 to 4.50 percent
The Fed’s median forecast for December of 2022 is 4.25 percent. We’re currently in the 3.0 to 3.25 percent range.
Focus on the Fed’s credibility
Scroll to continue
Average expectations for a Fed rate hike have exceeded another full rate hike this year.
Meanwhile, the median forecast is for GDP to rise 1.8 percent year on year in the second half as housing falls off a cliff and consumer spending weakens.
Since the lowest forecast for fourth-quarter GDP is zero percent on an annual basis, note that every Fed member believes that GDP will rise in the second half.
GDP forecast now for Q3 2022 is barely positive after housing starts report
Adding to the Fed’s credibility problem, the GDP forecast now for the third quarter of 2022 is barely positive after the housing start-up report.
The Federal Reserve Bank of Atlanta currently expects third-quarter GDP to be 0.3 percent (down the ladder).
Existing home sales have fallen every month since February, down 0.4 percent in August
Meanwhile, existing home sales have fallen every month since February, down 0.4% in August
However, the Fed expects growth of 1.8 percent in the second half (almost all of which should occur in the fourth quarter based on current data).
100% of Fed respondents expect at least an all-time high of GDP in the fourth quarter! This is what 0% on an annual basis means. The average expectation is greater.
The Fed doesn’t make predictions, the Fed makes fantasyland wishes.
What an incredible shoutout.
This post originated at MishTalk.Com
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