Economics & Research Blog
Fed Lowers GDP Outlook, Likely to Raise Rates by the End of 2015
The Federal Reserve lowered its forecast of 2015 GDP but maintained its March revisions forth the next two years.
By Dr. Joe Webb
Published: June 18, 2015
The Federal Reserve lowered its forecast
of 2015 GDP but maintained its March revisions forth the next two years. The Fed's forecasts have been reduced twice for 2015, originally with a high range of +3% back in their December forecast, but now just +2.0%. The negative Q1-2015 will be revised again next Wednesday, June 24. The GDP reports for a few years back, possibly more, will be revised at the end of June.
These are the forecasts that the Fed has made for 2015, 2016, and 2017.
2015 GDP forecast
- December: +2.6 to 3.0%
- March: +2.3 to 2.7%
- June: +1.8 to 2.0%; lower
2016 GDP forecast
- December: +2.5 to 3.0%
- March: +2.4 to 2.7%
- June: +2.4 to 2.7%; same
2017 GDP forecast
- December: +2.3 to 2,5%
- March: +2.1 to 2.5%
- June: +2.1 to 2.5%; same
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Dr. Yellen said the Fed would raise rates sometime this year. Since inflation as measured is picking up, it is likely that the Fed rate will still be negative. From that perspective, it will matter little.
The Fed's upcoming move, however, is being watched around the world with various fears or excitement associated with it. A recent report of the International Monetary Fund
lays out many of the issues. This includes the possibility of having to reverse course by decreasing rates, and losing credibility in the process.
The biggest risk is (still) the Greek financial crisis, but there are always others that can snowball into a biggest problem.
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The Fed's forecast for the unemployment rate were for slow improvement. I believe this is one area that the Fed is not being optimistic enough. Employment is rising, though not for full time employment, and the long term trend of workers leaving the labor force still seems to be in place. The way the unemployment rate is calculated these should result in a better employment rate than they expect.
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