Minutes of the Federal Open Market Committee
March 14-15, 2017
In conjunction with the Federal Open Market Committee (FOMC) meeting held on March 14-15, 2017, meeting participants submitted their projections of the most likely outcomes for real output growth, the unemployment rate, and inflation for each year from 2017 to 2019 and over the longer run.1 Each participant's projection was 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. 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.2 "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 Federal Reserve's objectives of maximum employment and stable prices.
Most FOMC participants expected that, under appropriate monetary policy, growth in real gross domestic product (GDP) would run somewhat above their individual estimates of its longer-run rate this year and in 2018, while about half of the participants projected that economic growth would slow in 2019 and run at or slightly below their individual longer-run estimates. A substantial majority of participants projected that the unemployment rate would run below their estimates of its longer-run normal level in 2017 and remain below that level through 2019. A large majority of participants projected that inflation, as measured by the four-quarter percentage change in the price index for personal consumption expenditures (PCE), would increase over the next two years; a majority of participants projected that inflation would be at the Committee's 2 percent objective in 2019, and all participants projected that inflation would be within a couple of tenths of a percentage point of the objective in that year. Participants' economic projections were generally quite similar to those submitted in December. 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, March 2017
Percent
| Variable | Median1 | Central tendency2 | Range3 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017 | 2018 | 2019 | Longer run | 2017 | 2018 | 2019 | Longer run | 2017 | 2018 | 2019 | Longer run | ||||
| Change in real GDP | 2.1 | 2.1 | 1.9 | 1.8 | 2.0 - 2.2 | 1.8 - 2.3 | 1.8 - 2.0 | 1.8 - 2.0 | 1.7 - 2.3 | 1.7 - 2.4 | 1.5 - 2.2 | 1.6 - 2.2 | |||
| December projection | 2.1 | 2.0 | 1.9 | 1.8 | 1.9 - 2.3 | 1.8 - 2.2 | 1.8 - 2.0 | 1.8 - 2.0 | 1.7 - 2.4 | 1.7 - 2.3 | 1.5 - 2.2 | 1.6 - 2.2 | |||
| Unemployment rate | 4.5 | 4.5 | 4.5 | 4.7 | 4.5 - 4.6 | 4.3 - 4.6 | 4.3 - 4.7 | 4.7 - 5.0 | 4.4 - 4.7 | 4.2 - 4.7 | 4.1 - 4.8 | 4.5 - 5.0 | |||
| December projection | 4.5 | 4.5 | 4.5 | 4.8 | 4.5 - 4.6 | 4.3 - 4.7 | 4.3 - 4.8 | 4.7 - 5.0 | 4.4 - 4.7 | 4.2 - 4.7 | 4.1 - 4.8 | 4.5 - 5.0 | |||
| PCE inflation | 1.9 | 2.0 | 2.0 | 2.0 | 1.8 - 2.0 | 1.9 - 2.0 | 2.0 - 2.1 | 2.0 | 1.7 - 2.1 | 1.8 - 2.1 | 1.8 - 2.2 | 2.0 | |||
| December projection | 1.9 | 2.0 | 2.0 | 2.0 | 1.7 - 2.0 | 1.9 - 2.0 | 2.0 - 2.1 | 2.0 | 1.7 - 2.0 | 1.8 - 2.2 | 1.8 - 2.2 | 2.0 | |||
| Core PCE inflation4 | 1.9 | 2.0 | 2.0 | 1.8 - 1.9 | 1.9 - 2.0 | 2.0 - 2.1 | 1.7 - 2.0 | 1.8 - 2.1 | 1.8 - 2.2 | ||||||
| December projection | 1.8 | 2.0 | 2.0 | 1.8 - 1.9 | 1.9 - 2.0 | 2.0 | 1.7 - 2.0 | 1.8 - 2.2 | 1.8 - 2.2 | ||||||
| Memo: Projected appropriate policy path | |||||||||||||||
| Federal funds rate | 1.4 | 2.1 | 3.0 | 3.0 | 1.4 - 1.6 | 2.1 - 2.9 | 2.6 - 3.3 | 2.8 - 3.0 | 0.9 - 2.1 | 0.9 - 3.4 | 0.9 - 3.9 | 2.5 - 3.8 | |||
| December projection | 1.4 | 2.1 | 2.9 | 3.0 | 1.1 - 1.6 | 1.9 - 2.6 | 2.4 - 3.3 | 2.8 - 3.0 | 0.9 - 2.1 | 0.9 - 3.4 | 0.9 - 3.9 | 2.5 - 3.8 | |||
Note: Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are percent changes from the fourth quarter of the previous year to the fourth quarter of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively, the price index for personal consumption expenditures (PCE) and the price index for PCE excluding food and energy. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. Each participant's projections are based on his or her assessment of appropriate monetary policy. Longer-run projections represent each participant's assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy. The projections for the federal funds rate are the value of the midpoint of the projected appropriate target range for the federal funds rate or the projected appropriate target level for the federal funds rate at the end of the specified calendar year or over the longer run. The December projections were made in conjunction with the meeting of the Federal Open Market Committee on December 13-14, 2016. One participant did not submit longer-run projections for the change in real GDP, the unemployment rate, or the federal funds rate in conjunction with the December 13-14, 2016, meeting, and one participant did not submit such projections in conjunction with the March 14-15, 2017, meeting.
1. For each period, the median is the middle projection when the projections are arranged from lowest to highest. When the number of projections is even, the median is the average of the two middle projections. Return to table
2. The central tendency excludes the three highest and three lowest projections for each variable in each year. Return to table
3. The range for a variable in a given year includes all participants' projections, from lowest to highest, for that variable in that year. Return to table
4. Longer-run projections for core PCE inflation are not collected. Return to table
Figure 1. Medians, central tendencies, and ranges of economic projections, 2017-19 and over the longer run*
Accessible version of figure 1 | Return to figure 1
As shown in figure 2, all but one participant expected that the evolution of economic conditions would likely warrant gradual increases in the federal funds rate to achieve and sustain maximum employment and 2 percent inflation. The medians of projections for the federal funds rate in 2017, 2018, and 2019 were essentially the same as those in the December Summary of Economic Projections (SEP). The median for 2019 was equal to the median of the longer-run projections. However, the economic outlook is uncertain, and participants noted that their economic projections and assessments of appropriate monetary policy could change in response to incoming information.
Figure 2. FOMC participants' assessments of appropriate monetary policy: Midpoint of target range or target level for the federal funds rate*
Accessible version of figure 2 | Return to figure 2
Most participants viewed the uncertainty attached to their projections as broadly similar to the average of the past 20 years, although some participants saw the uncertainty associated with their forecasts as higher than average. Most participants also judged the risks around their projections for economic growth, the unemployment rate, and inflation as broadly balanced, while several participants saw the risks to their forecasts of real GDP growth and inflation as weighted to the upside and several participants viewed the risks to their unemployment rate forecasts as tilted to the downside.
Figures 4.A, 4.B, and 4.C for real GDP growth, the unemployment rate, and inflation, respectively, present for the first time "fan charts" as well as charts of participants' current qualitative assessments of the uncertainty and risks surrounding their economic projections. The fan charts (the panels at the top of these three figures) show the medians of participants' projections surrounded by confidence intervals that are computed from the forecast errors of various private and government projections made over the past 20 years. The width of the confidence interval for each variable at a given point provides a measure of forecast uncertainty at that horizon. For all three macroeconomic variables, these charts illustrate that forecast uncertainty is substantial and generally increases as the forecast horizon lengthens. Reflecting in part the uncertainty about the future evolution of GDP growth, the unemployment rate, and inflation, participants' assessments of appropriate monetary policy are also subject to considerable uncertainty. To illustrate the uncertainty regarding the appropriate path for monetary policy, figure 5 shows a comparable fan chart around the medians of participants' assessments for the federal funds rate.3 As with the macroeconomic variables, forecast uncertainty for short-term interest rates is substantial and increases as the horizon lengthens.
The Outlook for Economic Activity
The median of participants' projections for the growth rate of real GDP, conditional on their individual assumptions about appropriate monetary policy, was 2.1 percent in 2017 and 2018 and 1.9 percent in 2019; the median of projections for the longer-run normal rate of real GDP growth was 1.8 percent. Compared with the December SEP, the medians of the forecasts for real GDP growth over the period from 2017 to 2019, as well as the median assessment of the longer-run growth rate, were mostly unchanged. As in December, about half of the participants incorporated expectations of fiscal stimulus into their projections; almost all in this group projected slightly higher real GDP growth next year relative to their December projections.
The median of projections for the unemployment rate in the fourth quarter of 2017 was 4.5 percent, unchanged from December and 0.2 percentage point below the median assessment of its longer-run normal level. Almost all participants projected that the unemployment rate would not change much over the subsequent two years. Based on the median projections, the anticipated path of the unemployment rate for coming years was also unchanged from the previous forecast. The median estimate of the longer-run normal rate of unemployment was 4.7 percent, slightly lower than in December.
Figures 3.A and 3.B show the distributions of participants' projections for real GDP growth and the unemployment rate from 2017 to 2019 and in the longer run. The distribution of individual projections of real GDP growth for this year was less dispersed relative to the distribution of the December projections, while the distribution for 2018 shifted up slightly. The distributions of projections for the unemployment rate were unchanged for 2017 and 2018, while they shifted slightly lower for 2019 and for the longer-run normal rate.
Figure 3.A. Distribution of participants' projections for the change in real GDP, 2017-19 and over the longer run*
Accessible version of figure 3.A | Return to figure 3.A
Figure 3.B. Distribution of participants' projections for the unemployment rate, 2017-19 and over the longer run*
Accessible version of figure 3.B | Return to figure 3.B
The Outlook for Inflation
The medians of projections for headline PCE price inflation were 1.9 percent in 2017 and 2.0 percent in 2018 and 2019; these medians were unchanged from December. Only a few participants saw inflation continuing to run below 2 percent in 2019, while several participants projected that inflation would run modestly above the Committee's objective in that year. The medians of projections for core inflation were 1.9 percent in 2017 and 2.0 percent in 2018 and 2019, very similar to the contour in December.
Figures 3.C and 3.D provide information on the distributions of participants' views about the outlook for inflation. The distributions of projections for headline PCE price inflation were largely unchanged from December, while the distributions for core PCE price inflation shifted up slightly. Some participants attributed the upward shift in their projections for core inflation to recent data that were somewhat above expectations.
Figure 3.C. Distribution of participants' projections for PCE inflation, 2017-19 and over the longer run*
Accessible version of figure 3.C | Return to figure 3.C
Figure 3.D. Distribution of participants' projections for core PCE inflation, 2017-19*
Accessible version of figure 3.D | Return to figure 3.D
Appropriate Monetary Policy
Figure 3.E provides the distribution of participants' judgments regarding the appropriate target or midpoint of the target range for the federal funds rate at the end of each year from 2017 to 2019 and over the longer run.4 The distributions for 2017 through 2019 shifted up modestly. The median projections of the federal funds rate continued to show gradual increases, with the median assessment for 2017 standing at 1.38 percent, consistent with three 25 basis point rate increases this year. Thereafter, the medians of the projections were 2.13 percent at the end of 2018 and 3.00 percent at the end of 2019; the median of the longer-run projections of the federal funds rate was 3.00 percent. Compared with the December SEP, the median of the projections for the federal funds rate rose only for 2019, and in that case just slightly.
Figure 3.E. Distribution of participants' judgments of the midpoint of the appropriate target range for the federal funds rate or the appropriate target level for the federal funds rate, 2017-19 and over the longer run*
Accessible version of figure 3.E | Return to figure 3.E
In discussing their March forecasts, many participants continued to express the view that the appropriate upward trajectory of the federal funds rate over the next few years would likely be gradual. That anticipated pace reflected a few factors, such as a short-term neutral real interest rate that was currently low and was expected to move up only slowly as well as a gradual return of inflation to the Committee's 2 percent objective. A few participants indicated that positive news on inflation and the continued strengthening of labor market conditions in recent months had increased their confidence that inflation would move toward or to the 2 percent objective. Some participants judged that a slightly firmer path of monetary policy than in their previous projections would likely be appropriate. Most of the participants who commented on the Committee's reinvestment policy anticipated that a change in that policy would be appropriate before the end of this year if the economic outlook evolved as projected.
Uncertainty and Risks
The economic projections of FOMC participants are generally subject to considerable uncertainty and risks, and, in assessing the path of appropriate monetary policy, FOMC participants take account of the range of possible outcomes, the likelihood of their occurring, and the potential benefits and costs to the economy should they occur. Table 2 provides one measure of the forecast uncertainty for the change in real GDP, the unemployment rate, and total consumer price inflation--the root mean squared error (RMSE) for forecasts made over the past 20 years. This measure of forecast uncertainty is incorporated graphically in the top panels of figures 4.A, 4.B, and 4.C, which display fan charts plotting the medians of participants' projections for real GDP growth, the unemployment rate, and PCE price inflation surrounded by symmetric confidence intervals derived from the RMSEs presented in table 2. If the degree of uncertainty attending these projections is similar to the typical magnitude of past forecast errors and if the risks around the projections are broadly balanced, then future outcomes of these variables would have about a 70 percent probability of occurring within these confidence intervals. For all three variables, this measure of forecast uncertainty is substantial and generally increases as the forecast horizon lengthens.
Table 2. Average historical projection error ranges
Percentage points
| Variable | 2017 | 2018 | 2019 |
|---|---|---|---|
| Change in real GDP1 | ±1.6 | ±2.1 | ±2.1 |
| Unemployment rate1 | ±0.5 | ±1.3 | ±1.8 |
| Total consumer prices2 | ±0.9 | ±1.1 | ±1.1 |
| Short-term interest rates3 | ±0.9 | ±2.0 | ±2.4 |
Note: Error ranges shown are measured as plus or minus the root mean squared error of projections for 1997 through 2016 that were released in the spring by various private and government forecasters. As described in the box "Forecast Uncertainty," under certain assumptions, there is about a 70 percent probability that actual outcomes for real GDP, unemployment, consumer prices, and the federal funds rate will be in ranges implied by the average size of projection errors made in the past. For more information, see David Reifschneider and Peter Tulip (2017), "Gauging the Uncertainty of the Economic Outlook Using Historical Forecasting Errors: The Federal Reserve’s Approach (PDF)," Finance and Economics Discussion Series 2017-020 (Washington: Board of Governors of the Federal Reserve System, February).
1. Definitions of variables are in the general note to table 1. Return to table
2. Measure is the overall consumer price index, the price measure that has been most widely used in government and private economic forecasts. Projection is percent change, fourth quarter of the previous year to the fourth quarter of the year indicated. Return to table
3. For Federal Reserve staff forecasts, measure is the federal funds rate. For other forecasts, measure is the rate on 3-month Treasury bills. Historical projections are the average level, in percent, in the fourth quarter of the year indicated. Return to table
Figure 4.A. Uncertainty and risks in projections of GDP growth*
Accessible version of figure 4.A | Return to figure 4.A
Figure 4.B. Uncertainty and risks in projections of the unemployment rate*
Accessible version of figure 4.B | Return to figure 4.B
Figure 4.C. Uncertainty and risks in projections of PCE inflation*
Accessible version of figure 4.C | Return to figure 4.C
FOMC participants may judge that the widths of the confidence intervals in the historical fan charts shown in figures 4.A through 4.C do not adequately capture their current assessments of the degree of uncertainty that surrounds their economic projections. Participants' assessments of the current level of uncertainty surrounding their economic projections are shown in the bottom-left panels of figures 4.A, 4.B, and 4.C. Most participants continued to view the uncertainty attached to their economic projections as broadly similar to the average of the past 20 years, with one fewer participant than in December seeing uncertainty about GDP growth, the unemployment rate, and headline inflation as higher than its historical average.5 In their discussion of the uncertainty attached to their current projections relative to levels of uncertainty over the past 20 years, as in December, about half of the participants expressed the view that, at this point, uncertainty surrounding prospective changes in fiscal and other policies is very large or that there is not yet enough information to make reasonable assumptions about the timing, nature, and magnitude of the changes.
The fan charts--which are symmetric around the median projections by assumption--also do not necessarily reflect participants' assessments of the balance of risks to their economic projections. Participants' assessments of the balance of risks to their economic projections are shown in the bottom-right panels of figures 4.A, 4.B, and 4.C. As in December, most participants judged the risks to their projections of real GDP growth, the unemployment rate, headline inflation, and core inflation as broadly balanced--in other words, as broadly consistent with a symmetric fan chart. One more participant saw the risks to unemployment as weighted to the downside than in December (the bottom-right panel of figure 4.B). The balance of risks to the inflation projection shifted up slightly relative to December, as one fewer participant judged the risks to both headline and core inflation as weighted to the downside and one more participant viewed the risks as weighted to the upside (the lower-right panels of figure 4.C). In discussing the balance of risks around their projections, some participants mentioned improvements in recent readings of household and business confidence as well as somewhat reduced risks from abroad. Moreover, a number of participants noted that the possibility of a more expansionary U.S. fiscal policy might present upside risks to real GDP growth and inflation and downside risks to unemployment.
Participants' assessments of the future path of the federal funds rate consistent with appropriate policy are generally subject to considerable uncertainty, reflecting in part uncertainty about the evolution of GDP growth, the unemployment rate, and inflation over time. The final line in table 2 shows the RMSEs for forecasts of short-term interest rates. These RMSEs are not strictly consistent with participants' projections of the federal funds rate, in part because these assessments are not forecasts of the likeliest outcomes but rather reflect each participant's individual judgment of appropriate monetary policy. However, the associated confidence intervals may provide a sense of the likely uncertainty around the future path of the federal funds rate generated by the uncertainty about the macroeconomic variables as well as additional adjustments to monetary policy that may be appropriate to offset the effects of shocks to the economy.
Figure 5 shows a fan chart plotting the medians of participants' assessments of the appropriate path of the federal funds rate surrounded by confidence intervals derived from the results presented in table 2. As with the macroeconomic variables, forecast uncertainty is substantial and increases at longer horizons. If at some point in the future the confidence interval around the federal funds rate were to extend below zero, it would be truncated at zero for purposes of the chart shown in figure 5; zero is the bottom of the lowest target range for the federal funds rate that has been adopted by the Committee in the past. This approach to the construction of the federal funds rate fan chart would be merely a convention and would not have any implication for possible future policy decisions regarding the use of negative interest rates to provide additional monetary policy accommodation if doing so were appropriate.
Figure 5. Uncertainty in projections of the federal funds rate*
*Note: The blue and red lines are based on actual values and median projected values, respectively, of the Committee's target for the federal funds rate at the end of the year indicated. The actual values are the midpoint of the target range; the median projected values are based on either the midpoint of the target range or the target level. The confidence interval around the median projected values is based on root mean squared errors of various private and government forecasts made over the previous 20 years. The confidence interval is not strictly consistent with the projections for the federal funds rate, primarily because these projections are not forecasts of the likeliest outcomes for the federal funds rate, but rather projections of participants' individual assessments of appropriate monetary policy. Still, historical forecast errors provide a broad sense of the uncertainty around the future path of the federal funds rate generated by the uncertainty about the macroeconomic variables as well as additional adjustments to monetary policy that may be appropriate to offset the effects of shocks to the economy.
The confidence interval is assumed to be symmetric except when it is truncated at zero--the bottom of the lowest target range for the federal funds rate that has been adopted in the past by the Committee. This truncation would not be intended to indicate the likelihood of the use of negative interest rates to provide additional monetary policy accommodation if doing so was judged appropriate. In such situations, the Committee could also employ other tools, including forward guidance and large-scale asset purchases, to provide additional accommodation. Because current conditions may differ from those that prevailed, on average, over the previous 20 years, the width and shape of the confidence interval estimated on the basis of the historical forecast errors may not reflect FOMC participants’ current assessments of the uncertainty and risks around their projections.
* The confidence interval is derived from forecasts of the average level of short-term interest rates in the fourth quarter of the year indicated; more information about these data is available in table 2. The shaded area encompasses less than a 70 percent confidence interval if the confidence interval has been truncated at zero.
Accessible version of figure 5 | Return to figure 5
The economic projections provided by the members of the Board of Governors and the presidents of the Federal Reserve Banks inform discussions of monetary policy among policymakers and can aid public understanding of the basis for policy actions. Considerable uncertainty attends these projections, however. The economic and statistical models and relationships used to help produce economic forecasts are necessarily imperfect descriptions of the real world, and the future path of the economy can be affected by myriad unforeseen developments and events. Thus, in setting the stance of monetary policy, participants consider not only what appears to be the most likely economic outcome as embodied in their projections, but also the range of alternative possibilities, the likelihood of their occurring, and the potential costs to the economy should they occur.
Table 2 summarizes the average historical accuracy of a range of forecasts, including those reported in past Monetary Policy Reports and those prepared by the Federal Reserve Board’s staff in advance of meetings of the Federal Open Market Committee (FOMC). The projection error ranges shown in the table illustrate the considerable uncertainty associated with economic forecasts. For example, suppose a participant projects that real gross domestic product (GDP) and total consumer prices will rise steadily at annual rates of, respectively, 3 percent and 2 percent. If the uncertainty attending those projections is similar to that experienced in the past and the risks around the projections are broadly balanced, the numbers reported in table 2 would imply a probability of about 70 percent that actual GDP would expand within a range of 1.4 to 4.6 percent in the current year, and 0.9 to 5.1 percent in the second and third years. The corresponding 70 percent confidence intervals for overall inflation would be 1.1 to 2.9 percent in the current year, and 0.9 to 3.1 percent in the second and third years. Figures 4.A through 4.C illustrate these confidence bounds in "fan charts" that are symmetric and centered on the medians of FOMC participants’ projections for GDP growth, the unemployment rate, and inflation. However, in some instances, the risks around the projections may not be symmetric. In particular, the unemployment rate cannot be negative; furthermore, the risks around a particular projection might be tilted to either the upside or the downside, in which case the corresponding fan chart would be asymmetrically positioned around the median projection.
Because current conditions may differ from those that prevailed, on average, over history, participants provide judgments as to whether the uncertainty attached to their projections of each economic variable is greater than, smaller than, or broadly similar to typical levels of forecast uncertainty seen in the past 20 years, as presented in table 2 and reflected in the widths of the confidence intervals shown in the top panels of figures 4.A through 4.C. Participants’ current assessments of the uncertainty surrounding their projections are summarized in the bottom-left panels of those figures. Participants also provide judgments as to whether the risks to their projections are weighted to the upside, are weighted to the downside, or are broadly balanced. That is, while the symmetric historical fan charts shown in the top panels of figures 4.A through 4.C imply that the risks to participants’ projections are balanced, participants may judge that there is a greater risk that a given variable will be above rather than below their projections. These judgments are summarized in the lower-right panels of figures 4.A through 4.C.
As with real activity and inflation, the outlook for the future path of the federal funds rate is subject to considerable uncertainty. This uncertainty arises primarily because each participant’s assessment of the appropriate stance of monetary policy depends importantly on the evolution of real activity and inflation over time. If economic conditions evolve in an unexpected manner, then assessments of the appropriate setting of the federal funds rate would change from that point forward. The final line in table 2 shows the error ranges for forecasts of short-term interest rates. They suggest that the historical confidence intervals associated with projections of the federal funds rate are quite wide. It should be noted, however, that these confidence intervals are not strictly consistent with the projections for the federal funds rate, as these projections are not forecasts of the most likely quarterly outcomes but rather are projections of participants' individual assessments of appropriate monetary policy and are on an end-of-year basis. However, the forecast errors should provide a sense of the uncertainty around the future path of the federal funds rate generated by the uncertainty about the macroeconomic variables as well as additional adjustments to monetary policy that would be appropriate to offset the effects of shocks to the economy.
If at some point in the future the confidence interval around the federal funds rate were to extend below zero, it would be truncated at zero for purposes of the fan chart shown in figure 5; zero is the bottom of the lowest target range for the federal funds rate that has been adopted by the Committee in the past. This approach to the construction of the federal funds rate fan chart would be merely a convention; it would not have any implications for possible future policy decisions regarding the use of negative interest rates to provide additional monetary policy accommodation if doing so were appropriate. In such situations, the Committee could also employ other tools, including forward guidance and asset purchases, to provide additional accommodation.
While figures 4.A through 4.C provide information on the uncertainty around the economic projections, figure 1 provides information on the range of views across FOMC participants. A comparison of figure 1 with figures 4.A through 4.C shows that the dispersion of the projections across participants is much smaller than the average forecast errors over the past 20 years.
1. The office of the president of the Federal Reserve Bank of Atlanta was vacant at the time of this FOMC meeting; the incoming president is scheduled to assume office on June 5, 2017. Marie Gooding, First Vice President of the Federal Reserve Bank of Atlanta, submitted economic projections. Return to text
2. One participant did not submit longer-run projections for real output growth, the unemployment rate, or the federal funds rate. Return to text
3. The fan chart for the federal funds rate provides a depiction of the uncertainty around the median assessment of the future path of appropriate monetary policy and is closely connected with the uncertainty about the future value of economic variables. In contrast, the dot plot shown in figure 2 displays the dispersion of views across individual participants about the appropriate level of the federal funds rate. Return to text
4. One participant's projections for the federal funds rate, real GDP growth, the unemployment rate, and inflation were informed by the view that there are multiple possible medium-term regimes for the U.S. economy, that these regimes are persistent, and that the economy shifts between regimes in a way that cannot be forecast. Under this view, the economy currently is in a regime characterized by expansion of economic activity with low productivity growth and a low short-term real interest rate, but longer-term outcomes for variables other than inflation cannot be usefully projected. Return to text
5. At the end of this summary, the box "Forecast Uncertainty" discusses the sources and interpretation of uncertainty in the economic forecasts and explains the approach used to assess the uncertainty and risks attending the participants' projections. Return to text