Diversity is Impossible

Who Believes The Fed GDP Or Unemployment Projections?

EDITOR NOTE: Do you believe the Federal Reserve’s projections on GDP, unemployment, and the PCE inflation rate? Headline projections are based not on a single figure in consensus but on an averaged figure whose range greatly varies. Think of it this way: if I dare you to jump into a pool that has an “average” temperature of 70 degrees fahrenheit, that pool can be as hot as 130 degrees or as cold as, say, 10 degrees. If you were to look at each of the Fed’s individual projections before they’re averaged, the variance in their projections can be rather huge. So, can the “average” figure be trusted?

Economic Projections

Please consider the Economic Projections of FOMC Participants under their individual assumptions of appropriate monetary policy, September 2020.

Fed's GDP, Unemployment, PCE Inflation Projections

Fed's GDP, Unemployment, PCE Inflation Projections 2020-09

GDP Projection

The Fed believes GDP will only contract 3.7% in 2020 then rebound 4% in 2021, and 3% in 2022.

Do you believe this?

Unemployment Projection

The Fed believes the Unemployment Rate will be 7.6% in 2020, 5.5% in 2021, and 4.6% in 2022.

Do you believe this?

PCE Inflation Projection

The Fed believes Core Personal Consumption Expenditure inflation (excluding food and energy) will be 1.5% in 2020, 1.7% in 2021, and 1.8% in 2022.

Do you believe this?

GDP Projections

 

 

GDP Projections

My Take

  • GDP: I will take the under. Way under. Much of the rebound was due to $600 pandemic stimulus checks that expired on July 25. This will be a huge headwind going forward.
  • Unemployment: I am leery of games with the participation rate and labor force but I will go with higher.
  • PCE : This one is humorous. For months, the Fed has committed not only to 2% but letting inflation run hotter than expected for some time to make up for needed lost inflation. Yet the Fed admits it will not hit its targets until 2023. PCE inflation, as measured, is a joke. So perhaps the Fed is on target.

Originally posted on The Street