In conjunction with the Fed’s FOMC meeting on September 21, each Fed member made projections for interest rates, the unemployment rate, inflation, and GDP.
PCE Inflation
- The Fed wants 2.0 percent inflation longer term so every Fed member forecast precisely 2.0 percent inflation despite the fact the Fed missed projections for a decade.
- I really don’t know where inflation will be in 2022 or 2023 or longer term and neither do they. There are too many moving parts with Russia, the mid-term elections, Biden’s energy policy and heaven help us if the Democrats manage to hold the House while adding even 1 seat to the Senate.
Unemployment Rate
- The Fed projects the unemployment rate for 2022 at 3.8 percent. That’s only up 0.1 percentage points from now.
- Unlike most, I do not think the unemployment rate will rise as much as it normally does in recessions.
- While a 3.8 percent unemployment rates is possible, it’s on the very optimistic side for sure.
GDP
- Purposely and wimpishly ducking recession calls, the Fed never directly projects recessions. But from where we are now, their 2022 GDP forecast goes beyond wildly optimistic and implies no recession.
- Nor does it appear there is a single recession forecast for 2023.
- What makes 2023 somewhat debatable is the fact that Fed GDP projections are 4th quarter to 4th quarter so technically there could be a 2023 short recession followed by a rebound in the second half of 2023.
- For 2022, it’s clear. The Fed sees a second half rebound, not a recession as the following chart shows.
Real GDP 2021-2022
GDP Projection Analysis (Numbers in Billions of Dollars)
- Real GDP in the 4th quarter of 2021 was 19,806
- Real GDP in the second quarter of 2022 was 19,699
- For the Fed’s 0.2 median year-over-year forecast to happen, 4th quarter GDP would need to be 19846 or higher, a rise of at least 177.
- That means real GDP would need to rise by 0.90 percent in the second half. And that would match the post-Covid GDP high.
- Annualized, the Fed is projecting over 1.8 percent growth in the second half of 2022.
How likely is 1.8 percent annualized growth in the second half coupled with Fed rate hike projections?
Dot Plot Show Fed Anticipates More Hikes in 2023 to 4.50 Percent
Yesterday, I noted a Dot Plot Shows Fed Anticipates More Hikes in 2023 to 4.50 Percent
The median Fed forecast for December of 2022 is 4.25 percent. We are currently in a range of 3.0 to 3.25 percent.
Fed Credibility in Focus
The median Fed rate hike projection is over another full point hike this year.
Simultaneously, the median forecast is for GDP to rise 1.8 annualized in the second half with housing falling off a cliff and consumer spending weakening.
Since the lowest 4th-quarter GDP projection is zero percent year-over-year, note that every Fed member believes GDP will rise in the second half.
GDPNow Forecast for 2022 Q3 Barely Positive Following Housing Starts Report
Adding to the Fed’s credibility problem the GDPNow Forecast for 2022 Q3 Barely Positive Following Housing Starts Report
The Atlanta Fed currently projects third-quarter GDP at 0.3 percent (and stair stepping lower).
Existing Home Sales Decline Every Month Since February, Down 0.4 Percent in August
Meanwhile, Existing Home Sales Decline Every Month Since February, Down 0.4 Percent in August
Yet, the Fed is projecting 1.8 percent second half growth (nearly all of which needs to happen in the fourth quarter based on current data).
100% of Fed participants expect no less than an all-time GDP high in the 4th quarter! That’s what 0% year-over-year would mean. The median expectation is greater.
The Fed is not making predictions, the Fed is making Fantasyland wishes.
What an incredulous hoot.
This post originated at MishTalk.Com
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Mish
I much prefer predictions in the manner of the Oracle of Delphi in Ancient Greece. The priestess, aka Pythia, would be dressed as a virgin (a purple veil and short white dress) to announce her oracles while in a frenzied state. This was supposedly caused by vapors rising from a rock chasm. The priestess spoke gibberish (Ancient Keynesian) which priests interpreted and turned into poetic dactylic hexameters. The ‘best’ predictions were enigmatic and prophetic. For example,
“… When the Prytanies’ seat shines white in the island of Siphnos, White-browed all the forum – need then of a true seer’s wisdom – Danger will threat from a wooden boat, and a herald in scarlet …”
A return to a pre-Covid economy does not cut it, especially when there has not been a goat sacrificed and its liver examined beforehand.
BTW, of special interest to the investment community were the three maxims inscribed in the forecourt:
Know thyself
Nothing to excess
Surety brings ruin
Increases in DFI loans and investments [earning assets/bank
credit], are approximately the same as increases in transaction accounts, TRs,
and time deposits, TDs, [savings-investment deposits/bank liabilities/bank
credit proxy] excluding IBDDs.
That the net absolute increase in these two figures is so
nearly identical is no happenstance, for TRs largely come into being through
the credit creating process, and TDs owe their origin almost exclusively to TRs
– either directly through transfer from TRs or indirectly via the currency route
or through the DFI’s undivided profits accounts.
dissected, whipped, and tugging at the oar, did you continue to think
that everything in this world happens for the best?” “I have always
abided by my first opinion,” answered Pangloss; “for after all, I am a
philosopher, and it would not become me to retract my sentiments.”