Board of Governors of the Federal Reserve System

Part 3: Summary of Economic Projections

Monetary Policy Report submitted to the Congress on July 5, 2019, pursuant to section 2B of the Federal Reserve Act

In conjunction with the Federal Open Market Committee (FOMC) meeting held on June 18–19, 2019, meeting participants submitted their projections of the most likely outcomes for real gross domestic product (GDP) growth, the unemployment rate, and inflation for each year from 2019 to 2021 and over the longer run. Each participant's projections were based on information available at the time of the meeting, together with his or her assessment of appropriate monetary policy—including a path for the federal funds rate and its longer-run value—and assumptions about other factors likely to affect economic outcomes.¹⁹ The longer-run projections represent each participant's assessment of the value to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy.²⁰ "Appropriate monetary policy" is defined as the future path of policy that each participant deems most likely to foster outcomes for economic activity and inflation that best satisfy his or her individual interpretation of the statutory mandate to promote maximum employment and price stability.

Participants who submitted longer-run projections generally expected that, under appropriate monetary policy, growth of real GDP in 2019 would run at or somewhat above their individual estimates of its longer-run rate. Thereafter, almost all participants expected real GDP growth to edge down, with the vast majority of participants projecting growth in 2021 to be at or below their estimates of its longer-run rate. All participants who submitted longer-run projections continued to expect that the unemployment rate would run at or below their estimates of its longer-run level through 2021. Compared with the Summary of Economic Projections (SEP) from March 2019, most participants revised down slightly their projections for the unemployment rate from 2019 through 2021. All participants marked down somewhat their projections for 2019 for total inflation, as measured by the four-quarter percent change in the price index for personal consumption expenditures (PCE), and almost all did so for their projections for core inflation. All participants projected that inflation would increase in 2020 from 2019, and a majority expected another slight increase in 2021. The vast majority of participants expected that inflation would be at or slightly above the Committee's 2 percent objective in 2021. Core PCE price inflation was also projected to increase over the projection period, rising to 2.0 percent in 2021. Table 1 and figure 1 provide summary statistics for the projections.

Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, under their individual assessments of projected appropriate monetary policy, June 2019

As shown in figure 2, about half of participants expected that the evolution of the economy, relative to their objectives of maximum employment and 2 percent inflation, would likely warrant keeping the federal funds rate at its current level through the end of 2019; the same number projected that a lower level for the federal funds rate would be appropriate by year-end. The medians of participants' assessments of the appropriate level of the federal funds rate in 2020 and 2021 were close to the median of their assessments of the longer-run federal funds rate level. Nearly all participants lowered their projections for the appropriate level of the federal funds rate, relative to March, at some point in the forecast period. Although nearly half of the participants revised their projections for 2019 to levels 25 basis points or 50 basis points below the current level, the median projection for the federal funds rate for the end of 2019 was unchanged. The medians for the federal funds rate for 2020 and 2021 were 50 basis points and 25 basis points lower than in March, respectively.

Most participants regarded the uncertainties around their forecasts for GDP growth, total inflation, and core inflation as broadly similar to the average of the past 20 years. About half of the participants viewed the level of uncertainty around their unemployment rate projections as being similar to the average of the past 20 years, and about the same number viewed uncertainty as higher. Participants' assessments of risks to their outlooks for output growth and the unemployment rate shifted notably relative to their assessments in March. As a result, most participants viewed the risks for GDP growth as weighted to the downside and the risks for the unemployment rate as weighted to the upside. About half of participants viewed the risks to inflation as being broadly balanced, with a similar number viewing inflation risks as being weighted to the downside.

A more complete description of the SEP will be released with the minutes of the June 18–19, 2019, FOMC meeting on July 10.

Footnotes