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Fed "Downgrades" GDP Growth Forecasts

By Justin Loiseau - Mar 19, 2014 at 5:20PM

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Unemployment rates expected to dip -- but that might not mean much.

The Federal Reserve is more reserved about the future, according to economic projections released (link opens as PDF) today.

Excluding the three highest and lowest projections of Federal Reserve Open Market Committee members, the "central tendency" range for 2014 growth got a haircut, dropping from December's 2.8%-3.2% estimate to a current 2.8%-3% prediction. Projects for 2015 and 2016 saw 0.2 percentage points pulled off, as well, with longer run estimates evening out to between 2.2% and 2.3% growth.

Source: Federal Reserve.

Unemployment rate estimates dipped lower, but that might not mean much. While 2014 central tendency estimates now run between 6.1% to 6.3%, compared with 6.3% to 6.6% last December, the Fed is placing less importance on this metric.

In a concurrent announcement today, the Reserve noted that a 6.5% unemployment rate will no longer serve as a threshold for its monetary actions, in part because it can be easily swayed by ups and downs in labor force participation.

Over the long term, the Fed ultimately expects the unemployment rate to even out somewhere in the range of 5.2% to 5.6%.

Source: Federal Reserve.

Inflation projections are relatively unchanged from December's predictions, although 2014 estimates did add on 0.1 percentage points to its lower bound, putting new central tendency projections between 1.5% and 1.6%. While it's not much, it should allow deflation worriers to sleep slightly better tonight. In the longer run, the Fed would eventually like to see inflation pick up to 2.0%.

Source: Federal Reserve.

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