Fed's new economic projections may come with a dose of maybe, maybe not
WASHINGTON - Updated economic projections from Federal Reserve officials this week are expected to show fewer interest rate cuts than policymakers anticipated three months ago, faster expected inflation, and slower growth, a pinpoint economic outlook that will carry the weight of the U.S. central bank's authority.
"I always emphasize the importance of a story ... that ties together in a coherent way the macro outlook and policy strategy," Larry Meyer, a former Fed governor who now heads consulting firm Monetary Policy Analytics, wrote last week."The strength of the story ... depends on the degree of uncertainty, which has spiked of late. In that case, we should pay more attention to alternative scenarios.
Yet unlike the rest of the time since the outbreak of the COVID-19 pandemic in early 2020, the risks now are more nuanced and the data often contradictory. Initially, central bankers were only focused on lowering the unemployment rate after a massive jump in joblessness during the months when many in-person services were shuttered; later the sole focus was on curbing inflation that by mid-2022 had erupted to a 40-year high.
"If Waller is correct, then the economy may sooner than expected approach a point where the Fed needs to take the employment mandate into account," Tim Duy, chief U.S. economist with SGH Macro Advisors, wrote last week, referring to the Fed's dual congressionally-mandated goals of maintaining stable prices and low unemployment.
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