Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, December 12-13, 2017 : SEP: Individual Projections

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SEP: Compilation and Summary of Individual Economic Projections

December 12–13, 2017

Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents,
under their individual assessments of projected appropriate monetary policy, December 2017
Percent

Median1
Central tendency2
Range3
Variable
2017 2018 2019 2020 Longer 2017
2018
2019
2020
2017
2018
2019
2020
Longer
Longer
run
run
run
Change in real GDP
2.5
2.5
2.1
2.0
1.8
2.4 – 2.5 2.2 – 2.6 1.9 – 2.3 1.7 – 2.0 1.8 – 1.9 2.4 – 2.6 2.2 – 2.8 1.7 – 2.4 1.1 – 2.2 1.7 – 2.2
September projection 2.4
2.1
2.0
1.8
1.8
2.2 – 2.5 2.0 – 2.3 1.7 – 2.1 1.6 – 2.0 1.8 – 2.0 2.2 – 2.7 1.7 – 2.6 1.4 – 2.3 1.4 – 2.0 1.5 – 2.2
Unemployment rate
September projection

4.1
4.3

3.9
4.1

3.9
4.1

4.0
4.2

4.6
4.6

4.1
3.7 – 4.0 3.6 – 4.0 3.6 – 4.2 4.4 – 4.7
3.6 – 4.0 3.5 – 4.2 3.5 – 4.5 4.3 – 5.0
4.1
4.2 – 4.3 4.0 – 4.2 3.9 – 4.4 4.0 – 4.5 4.5 – 4.8 4.2 – 4.5 3.9 – 4.5 3.8 – 4.5 3.8 – 4.8 4.4 – 5.0

PCE infation
September projection

1.7
1.6

1.9
1.9

2.0
2.0

2.0
2.0

2.0
2.0

1.6 – 1.7 1.7 – 1.9
1.5 – 1.6 1.8 – 2.0

2.0
2.0

2.0 – 2.1
2.0 – 2.1

Core PCE infation4
September projection

1.5
1.5

1.9
1.9

2.0
2.0

2.0
2.0

1.5
1.7 – 1.9
1.5 – 1.6 1.8 – 2.0

2.0
2.0

2.0 – 2.1
2.0 – 2.1

1.4
1.4

2.1
2.1

2.7
2.7

3.1
2.9

2.0
2.0

1.5 – 1.7 1.7 – 2.1 1.8 – 2.3 1.9 – 2.2
1.5 – 1.7 1.7 – 2.0 1.8 – 2.2 1.9 – 2.2

2.0
2.0

1.4 – 1.5 1.7 – 2.0 1.8 – 2.3 1.9 – 2.3
1.4 – 1.7 1.7 – 2.0 1.8 – 2.2 1.9 – 2.2

Memo: Projected
appropriate policy path
Federal funds rate
September projection

2.8
2.8

1.4
1.9 – 2.4 2.4 – 3.1 2.6 – 3.1 2.8 – 3.0 1.1 – 1.4 1.1 – 2.6 1.4 – 3.6 1.4 – 4.1 2.3 – 3.0
1.1 – 1.4 1.9 – 2.4 2.4 – 3.1 2.5 – 3.5 2.5 – 3.0 1.1 – 1.6 1.1 – 2.6 1.1 – 3.4 1.1 – 3.9 2.3 – 3.5

Note: Projections of change in real gross domestic product (GDP) and projections for both measures of infation are percent changes from the fourth quarter of the previous
year to the fourth quarter of the year indicated. PCE infation and core PCE infation 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 specifed calendar year or over the longer run. The September projections were made in conjunction with the meeting of the Federal Open Market Committee
on September 19–20, 2017. 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 September 19–20, 2017, meeting, and one participant did not submit such projections in conjunction with the December 12–13, 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.
2. The central tendency excludes the three highest and three lowest projections for each variable in each year.
3. The range for a variable in a given year includes all participants’ projections, from lowest to highest, for that variable in that year.
4. Longer-run projections for core PCE infation are not collected.

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Page 1 of 40

SEP: Compilation and Summary of Individual Economic Projections

December 12–13, 2017

Table 1.A. Economic projections for the frst half of 2017*
(in percent)

Medians, central tendencies, and ranges
Median

Central tendency

Range

Change in real GDP
September projection

2.1
2.2

2.1
2.1 – 2.2

2.1
2.1 – 2.3

PCE infation
September projection

1.2
1.2

1.2
1.2 – 1.3

1.2
1.2 – 1.3

Core PCE infation
September projection

1.4
1.4

1.4
1.4

1.4
1.4

Participants’ projections
Projection

Change in real GDP

PCE infation

Core PCE infation

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

2.1
2.1
2.1
2.1
2.1
2.1
2.1
2.1
2.1
2.1
2.1
2.1
2.1
2.1
2.1
2.1

1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2
1.2

1.4
1.4
1.4
1.4
1.4
1.4
1.4
1.4
1.4
1.4
1.4
1.4
1.4
1.4
1.4
1.4

* Growth and infation are reported at annualized rates.

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Page 2 of 40

SEP: Compilation and Summary of Individual Economic Projections

December 12–13, 2017

Table 1.B. Economic projections for the second half of 2017*
(in percent)

Medians, central tendencies, and ranges
Median

Central tendency

Range

Change in real GDP
September projection

2.9
2.6

2.7 – 2.9
2.3 – 2.8

2.7 – 3.1
2.2 – 3.2

PCE infation
September projection

2.2
1.9

2.0 – 2.2
1.8 – 2.0

1.8 – 2.2
1.7 – 2.2

Core PCE infation
September projection

1.6
1.6

1.6
1.6 – 1.8

1.4 – 1.6
1.4 – 2.0

Participants’ projections
Projection

Change in real GDP

PCE infation

Core PCE infation

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

2.7
2.9
2.9
3.1
2.7
2.7
2.7
2.7
2.9
2.9
2.9
2.9
2.7
2.9
2.9
2.9

2.2
2.2
2.0
2.2
2.0
2.2
2.2
1.8
2.2
1.8
2.2
2.2
2.2
2.2
2.2
2.2

1.6
1.6
1.6
1.6
1.6
1.6
1.6
1.6
1.6
1.4
1.6
1.6
1.6
1.6
1.6
1.6

* Projections for the second half of 2017 implied by participants’ December projections for the frst half of 2017
and for 2017 as a whole. Growth and infation are reported at annualized rates.

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Page 3 of 40

SEP: Compilation and Summary of Individual Economic Projections

December 12–13, 2017

Table 2. December economic projections, 2017–20 and over the longer run
(in percent)
Projection

Year

Change in
real GDP

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017
2017

2.4
2.5
2.5
2.6
2.4
2.4
2.4
2.4
2.5
2.5
2.5
2.5
2.4
2.5
2.5
2.5

4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018
2018

2.3
2.4
2.2
2.6
2.8
2.7
2.6
2.2
2.5
2.3
2.6
2.5
2.2
2.6
2.5
2.2

4.0
3.8
4.0
3.7
3.9
4.0
3.7
3.7
3.6
3.9
3.7
3.8
3.9
3.8
3.9
4.0

Authorized for Public Release

Unemployment
PCE
rate
infation

Page 4 of 40

Core PCE
infation

Federal
funds rate

1.7
1.7
1.6
1.7
1.6
1.7
1.7
1.5
1.7
1.5
1.7
1.7
1.7
1.7
1.7
1.7

1.5
1.5
1.5
1.5
1.5
1.5
1.5
1.5
1.5
1.4
1.5
1.5
1.5
1.5
1.5
1.5

1.38
1.38
1.38
1.13
1.13
1.38
1.38
1.38
1.38
1.38
1.38
1.38
1.38
1.38
1.38
1.38

1.9
1.8
2.0
1.7
1.7
1.9
1.9
1.8
1.9
1.9
1.8
2.1
1.7
1.7
1.9
2.0

1.9
1.8
2.0
1.7
1.7
1.9
1.9
1.8
1.9
1.9
1.9
2.0
1.7
1.7
1.8
2.0

2.38
1.88
1.38
1.63
1.13
2.13
2.13
2.13
2.13
2.38
2.63
2.13
2.13
1.88
2.38
1.88

SEP: Compilation and Summary of Individual Economic Projections

December 12–13, 2017

Table 2. (continued)
Projection

Year

Change in
real GDP

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019

2.0
2.2
2.0
2.4
2.4
2.3
2.2
1.8
2.1
2.0
1.7
2.0
1.9
2.2
2.3
1.9

3.9
4.0
4.2
3.5
3.6
4.0
3.6
3.9
3.5
3.8
3.7
4.0
3.8
3.7
4.1
4.0

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020
2020

1.8
2.0
2.0
2.0
2.0
2.2
1.9
1.6
1.8
2.0
1.1
1.7
1.6
2.0
2.0
1.8

3.8
4.1
4.5
3.5
3.6
4.2
3.5
4.1
3.5
3.8
4.0
4.2
3.9
3.7
4.3
4.1

Authorized for Public Release

Unemployment
PCE
rate
infation

Page 5 of 40

Core PCE
infation

Federal
funds rate

2.0
2.2
2.0
1.9
2.0
2.0
2.0
2.0
2.0
2.0
2.1
2.3
1.9
1.8
2.0
2.0

2.0
2.2
2.0
1.9
2.0
2.0
2.0
2.0
2.0
2.0
2.1
2.3
1.9
1.8
2.0
2.0

3.38
2.63
1.38
2.75
1.63
2.63
2.88
2.88
2.63
3.38
3.63
2.88
2.63
2.38
3.13
2.38

2.0
2.0
2.0
2.1
2.1
2.0
2.0
2.1
2.1
2.0
2.2
2.2
2.0
1.9
2.0
2.0

2.0
2.0
2.0
2.1
2.1
2.0
2.0
2.1
2.1
2.0
2.3
2.2
2.0
1.9
2.0
2.0

3.50
3.13
1.38
3.00
2.38
3.13
3.13
3.00
2.63
4.13
4.13
3.13
3.13
2.88
3.00
2.63

SEP: Compilation and Summary of Individual Economic Projections

December 12–13, 2017

Table 2. (continued)
Projection

Year

Change in
real GDP

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16

LR
LR
LR
LR
LR
LR
LR
LR
LR
LR
LR
LR
LR
LR
LR
LR

1.8
2.0

5.0
4.7

1.8
1.7
2.2
1.8
1.7
1.8
1.8
1.7
1.8
1.8
1.9
2.0
1.8

4.5
4.4
4.5
4.4
4.7
4.7
4.8
4.7
4.6
4.5
4.3
4.8
4.4

Authorized for Public Release

Unemployment
PCE
rate
infation

Page 6 of 40

2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0
2.0

Core PCE
infation

Federal
funds rate
3.00
3.00
2.75
2.25
3.00
3.00
2.50
2.50
3.00
2.75
2.75
2.75
2.75
3.00
2.75

SEP: Compilation and Summary of Individual Economic Projections

December 12–13, 2017

Figure 1. Medians, central tendencies, and ranges of economic projections, 2017–20 and over the longer run
Percent

Change in real GDP
Median of projections
Central tendency of projections
Range of projections

3

2

1

Actual

2012

2013

2014

2015

2016

2017

2018

2019

2020

Longer
run
Percent

Unemployment rate
8
7
6
5
4

2012

2013

2014

2015

2016

2017

2018

2019

2020

Longer
run
Percent

PCE inflation
3

2

1

2012

2013

2014

2015

2016

2017

2018

2019

2020

Longer
run
Percent

Core PCE inflation
3

2

1

2012

2013

2014

2015

2016

2017

2018

2019

2020

Longer
run

Note: Definitions of variables and other explanations are in the notes to table 1. The data for the actual values of
the variables are annual.

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Page 7 of 40

SEP: Compilation and Summary of Individual Economic Projections

December 12–13, 2017

Figure 2. FOMC participants’ assessments of appropriate monetary policy: Midpoint of target range or target level for
the federal funds rate

Percent

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

2017

2018

2019

2020

Longer run

Note: Each shaded circle indicates the value (rounded to the nearest 1/8 percentage point) of an individual participant’s judgment of the midpoint of the appropriate target range for the federal funds rate or the appropriate target
level for the federal funds rate at the end of the specified calendar year or over the longer run. One participant did not
submit longer-run projections for the federal funds rate.

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Page 8 of 40

SEP: Compilation and Summary of Individual Economic Projections

December 12–13, 2017

Figure 4.A. Uncertainty and risks in projections of GDP growth

Median projection and confidence interval based on historical forecast errors

Percent

Change in real GDP
Median of projections
70% confidence interval

4

3

2

1

Actual

0

2012

2013

2014

2015

2016

2017

2018

2019

2020

FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants

Uncertainty about GDP growth

Risks to GDP growth

December projections
September projections

Lower

Broadly
similar

Number of participants

18
16
14
12
10
8
6
4
2

Higher

December projections
September projections

Weighted to
downside

Broadly
balanced

18
16
14
12
10
8
6
4
2

Weighted to
upside

Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the
percent change in real gross domestic product (GDP) from the fourth quarter of the previous year to the fourth quarter
of the year indicated. The confidence interval around the median projected values is assumed to be symmetric and is
based on root mean squared errors of various private and government forecasts made over the previous 20 years; more
information about these data is available in table 2. 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; these current assessments are summarized in the lower panels. Generally speaking, participants who
judge the uncertainty about their projections as “broadly similar” to the average levels of the past 20 years would view
the width of the confidence interval shown in the historical fan chart as largely consistent with their assessments of
the uncertainty about their projections. Likewise, participants who judge the risks to their projections as “broadly
balanced” would view the confidence interval around their projections as approximately symmetric. For definitions of
uncertainty and risks in economic projections, see the box “Forecast Uncertainty.”

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Page 9 of 40

SEP: Compilation and Summary of Individual Economic Projections

December 12–13, 2017

Figure 4.B. Uncertainty and risks in projections of the unemployment rate

Median projection and confidence interval based on historical forecast errors

Percent

Unemployment rate

10

Median of projections
70% confidence interval

9
8
7
6

Actual

5
4
3
2
1

2012

2013

2014

2015

2016

2017

2018

2019

2020

FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants

Uncertainty about the unemployment rate
December projections
September projections

Lower

Broadly
similar

Number of participants

Risks to the unemployment rate
18
16
14
12
10
8
6
4
2

Higher

December projections
September projections

Weighted to
downside

Broadly
balanced

18
16
14
12
10
8
6
4
2

Weighted to
upside

Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of
the average civilian unemployment rate in the fourth quarter of the year indicated. The confidence interval around
the median projected values is assumed to be symmetric and is based on root mean squared errors of various private
and government forecasts made over the previous 20 years; more information about these data is available in table 2.
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; these current assessments are
summarized in the lower panels. Generally speaking, participants who judge the uncertainty about their projections as
“broadly similar” to the average levels of the past 20 years would view the width of the confidence interval shown in the
historical fan chart as largely consistent with their assessments of the uncertainty about their projections. Likewise,
participants who judge the risks to their projections as “broadly balanced” would view the confidence interval around
their projections as approximately symmetric. For definitions of uncertainty and risks in economic projections, see the
box “Forecast Uncertainty.”

Authorized for Public Release

Page 10 of 40

SEP: Compilation and Summary of Individual Economic Projections

December 12–13, 2017

Figure 4.C. Uncertainty and risks in projections of PCE inflation

Median projection and confidence interval based on historical forecast errors

Percent

PCE inflation
Median of projections
70% confidence interval

3

2

1
Actual
0

2012

2013

2014

2015

2016

2017

2018

2019

2020

FOMC participants’ assessments of uncertainty and risks around their economic projections
Number of participants

Uncertainty about PCE inflation

Risks to PCE inflation

December projections
September projections

Lower

Broadly
similar

Number of participants

December projections
September projections

18
16
14
12
10
8
6
4
2

Higher

Weighted to
downside

Broadly
balanced

Number of participants

Uncertainty about core PCE inflation

Broadly
similar

Weighted to
upside
Number of participants

Risks to core PCE inflation

December projections
September projections

Lower

18
16
14
12
10
8
6
4
2

18
16
14
12
10
8
6
4
2

Higher

December projections
September projections

Weighted to
downside

Broadly
balanced

18
16
14
12
10
8
6
4
2

Weighted to
upside

Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the
percent change in the price index for personal consumption expenditures (PCE) from the fourth quarter of the previous
year to the fourth quarter of the year indicated. The confidence interval around the median projected values is assumed
to be symmetric and is based on root mean squared errors of various private and government forecasts made over the
previous 20 years; more information about these data is available in table 2. 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; these current assessments are summarized in the lower panels. Generally speaking,
participants who judge the uncertainty about their projections as “broadly similar” to the average levels of the past
20 years would view the width of the confidence interval shown in the historical fan chart as largely consistent with their
assessments of the uncertainty about their projections. Likewise, participants who judge the risks to their projections
as “broadly balanced” would view the confidence interval around their projections as approximately symmetric. For
definitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.”

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Page 11 of 40

SEP: Compilation and Summary of Individual Economic Projections

December 12–13, 2017

Table 3. Uncertainty and risks

Question 2(a): Please indicate your judgment of the uncertainty attached
to your projections relative to levels of uncertainty over the past 20 years.
Individual responses
Respondent

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

Change in real GDP
Unemployment rate
PCE Infation
Core PCE Infation

B
B
B
B

A
A
B
B

B
B
B
B

B
B
B
B

B
B
B
B

B
B
B
B

B
B
B
B

B
B
B
B

B
B
B
B

B
B
B
B

A
A
B
B

B
B
B
B

B
B
B
B

B
B
B
B

B
B
B
B

B
B
B
B

A = Higher

B = Broadly similar

C = Lower

Question 2(b): Please indicate your judgment of the risk weighting around
your projections.
Individual responses
Respondent

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

Change in real GDP
Unemployment rate
PCE Infation
Core PCE Infation

B
B
A
A

A
C
B
B

A
B
A
A

B
B
B
B

C
B
C
C

A
C
B
B

B
B
C
C

B
B
B
B

B
B
B
B

B
B
B
B

B
B
B
B

B
B
B
B

B
B
B
B

B
B
B
B

B
B
B
B

A
C
B
B

A = Weighted to upside

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December 12–13, 2017

Figure 5. Uncertainty in projections of the federal funds rate

Median projection and confidence interval based on historical forecast errors

Percent

Federal funds rate
Midpoint of target range
Median of projections
70% confidence interval*

6
5
4
3
2
1

Actual

0

2012

2013

2014

2015

2016

2017

2018

2019

2020

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.

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December 12–13, 2017

Longer-run Projections
Question 1(c). If you anticipate that the convergence process will take
SHORTER OR LONGER than about fve or six years, please indicate
below your best estimate of the duration of the convergence process. You
may also include below any other explanatory comments that you think
would be helpful.
Respondent 1: N/A
Respondent 2: I anticipate that the economy will converge to my longer-run projection within 5 years.
Respondent 3: Refecting recent data, we project a temporary undershooting of infation for 2017. GDP
growth and unemployment are also expected to deviate temporarily from a regime characterized by low productivity
growth and a low real interest rate on short-term government debt. This regime features GDP growth of 2.0 percent,
an unemployment rate of 4.5 percent, and infation of 2.0 percent. We project that the undershooting of infation
will end in 2018, the overshooting of GDP growth will end in 2019, and the undershooting of unemployment will end
in 2020. Because there are multiple potential medium-term outcomes, we cannot provide a single set of projections
for GDP growth and unemployment. Calculating an average of these variables based on multiple outcomes is
potentially misleading. We do provide a 2.0 percent longer-run infation projection that is independent of the
regime.
Respondent 4: N/A
Respondent 5: N/A
Respondent 6: N/A
Respondent 7: N/A
Respondent 8: Our dual mandate goals are reached by 2019. However, it will take a couple more years to
achieve complete convergence to longer-run levels. The e ects from sustained accommodative monetary policy
will generate a modest degree of overshooting of infation and an unemployment rate that remains well below the
natural rate for a number of years, before returning back to longer-run levels.
Respondent 9: We are already below my estimate of the longer-run sustainable unemployment rate. I expect
that we will be close to our 2-percent infation objective by the end of next year, although the exact timing is
uncertain. I expect unemployment to remain low during 2019 and 2020, and infation to move above 2 percent.
Under appropriate policy, it might easily take an additional 3-to-5 years for unemployment and infation to converge
to their respective longer-run rates.
Respondent 10: Having essentially achieved our objectives for infation and unemployment, the current
stance of monetary policy will likely cause tightening of the unemployment rate beyond its longer-run level. Policy
rates will need to adjust gradually over several years to bring unemployment back in line with the longer-run
objective, ensuring sustainable economic growth with price stability.

Respondent 11: Given our estimate of the equilibrium unemployment rate, the economy is now operating
above potential and the underlying pace of activity suggests a signifcant risk of further undesirable overshooting
of full employment in the near term. In order to converge back to full employment, a prolonged period of growth
below potential will be needed. The historical record, however, places a signifcant probability on a “growth
recession” eventually morphing into a full-blown recession. In sum, while a purely model-driven forecast would
suggest convergence to the equilibrium unemployment rate from below around 2023, there is a nontrivial risk that
the projected soft landing will not materialize in practice.

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Respondent 12: We still assume the potential GDP growth rate is 1.8 percent. We continue to judge that the
longer-run normal rate of unemployment is between 4 and 6 percent, with the mode of that distribution between 4.5
and 5 percent; for now, we have maintained our point estimate at 4.6 percent. However, the recent developments
in the labor market and infation suggest there is a higher probability that u* could be below 4.5 percent.
At this time, we tentatively judge that the supply-side impact of any likely tax legislation will be fairly small, and
thus it has little e ect on our estimates of potential GDP growth and the longer-run normal rate of unemployment.
Assuming that the legislation is fnalized and enacted into law, we will undertake over the coming FOMC cycles a
further assessment of its impact on potential growth and u*.
We project that the unemployment rate will be below its longer-run normal level through 2020, and probably
not return to that level until at least a couple of years into that decade. Our scenario analysis of labor fows and
the historical behavior of the unemployment rate in long expansions indicate that there is a signifcant probability
that the unemployment rate could fall even further below its longer-run normal level than occurs in our central
forecast.
We assume that long-term infation expectations will remain anchored at levels consistent with the FOMC’s
longer-run objective. Under these conditions and with some undershooting of the longer-run normal unemployment
rate over the forecast horizon, we expect infation as measured by the PCE price index to be mildly above the FOMC’s
longer-run objective in 2019-20, before returning to that level early in the next decade.

Respondent 13: Full convergence will likely take six years or so, for two reasons. First, I anticipate a gradual
rise in the neutral rate through 2020 and beyond as productivity growth gradually picks up and the dollar depreciates
modestly. Second, my forecast shows the unemployment rate running modestly below my estimate of its longer-run
sustainable level through 2020, and so it will need to rise modestly in subsequent years to stabilize infation at 2
percent.
Respondent 14: N/A
Respondent 15: At this point, convergence is likely in four to fve years.
Respondent 16: N/A

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December 12–13, 2017

Uncertainty and Risks
Question 2(a). (Optional) If you have any explanatory comments
regarding your judgment of the uncertainty attached to your projections
relative to levels of uncertainty over the past 20 years, you may enter
them below.
Respondent 1: N/A
Respondent 2: Uncertainty surrounding output growth and unemployment remains elevated by the heightened uncertainty about the course of fscal policy, regulatory reform, and trade policy. The impact on infation
uncertainty is small given how fat the Phillips curve seems to be.

Respondent 3: N/A
Respondent 4: The impending changes to the federal tax code certainly add uncertainty to the outlook. Tax
cuts will boost consumption and investment and will increase the level of potential output over time. However
the magnitude and timing of the e ects are inherently diÿcult and complicated to assess. The wide range of
possible aggregate demand and supply e ects also implies substantial uncertainty over resource utilization. These
considerations add to the uncertainty surrounding our projections for both infation and real activity, but not by
enough to move us out of the“broadly similar”uncertainty box.

Respondent 5: The current level of uncertainty lies somewhere between the low levels experienced during the
Great Moderation and the high levels experienced during the fnancial crisis and its immediate aftermath.
Respondent 6: N/A
Respondent 7: N/A
Respondent 8: Uncertainty about my projection for economic activity and infation is similar to its average
level over the past 20 years. Infation remains anchored by stable longer-run infation expectations at the FOMC’s
stated goal of 2 percent.

Respondent 9: Uncertainty about the appropriate path for the federal funds rate over the next few years is
high, with little room for error on either side. The adverse economic consequences of any policy errors will be felt
in late 2019 and, especially, 2020. At those horizons, uncertainty about the paths of real activity and infation is
elevated. Over 2018 and early 2019, however, economic uncertainty is about average.

Respondent 10: N/A
Respondent 11: Our baseline forecast delivers a soft landing from a low level of the unemployment rate to a
higher level consistent with full employment. As already mentioned, these smooth transitions are rare in practice,
even when considering the international evidence. For this reason, we view the uncertainty around our projection
of real activity as higher than usual.
Respondent 12: Ours is a quantitative judgment based on the widths of the probability intervals from the
FRBNY forecast distributions for real GDP growth and core PCE infation. The widths of these intervals are not
substantially di erent from those in our September SEP submission. Even though the economic data have been
solid, fnancial market volatility generally has been subdued, and the probability of a tax package has increased
markedly (all of which should reduce uncertainty); however, the macroeconomic impact of the likely tax legislation
remains quite uncertain and signifcant geopolitical uncertainties are still apparent. The probability intervals for
real activity and core PCE infation forecasts thus are broadly in line with the SEP standard–for infation, this
assessment takes into account the di erences between forecast errors for overall consumer infation and core PCE
infation.

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Respondent 13: While I think the uncertainty attached to my projection remains broadly similar that experienced over the past 20 years, it is worth noting that it is probably a bit greater than it was at the time of
the September projection because the macroeconomic e ects of the tax package now under consideration are
complicated and diÿcult to judge.
Respondent 14: N/A
Respondent 15: N/A
Respondent 16: N/A

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Uncertainty and Risks (continued)
Question 2(b). (Optional) If you have any explanatory comments
regarding your judgment of the risk weighting around your projections,
you may enter them below.
Respondent 1: With GDP growth above trend, the unemployment rate below 4 percent, and fscal stimulus
kicking in, the Phillips Curve could awaken and rise.

Respondent 2: While I anticipate some small stimulus from tax reform beginning in 2018 that will boost
demand, raise output growth, and lower the unemployment rate further, my uncertainty about the magnitude and
timing of fscal stimulus and its e ects on the economy remains high.
Respondent 3: We are answering this question variable by variable as they may be a ected by important
regime shifts.
With respect to GDP growth, the current productivity regime is low. A higher productivity growth regime is
possible, but we see no compelling reason to predict a switch at this time. Recent increases in productivity growth
still leave productivity in the low productivity regime. However, as changes in tax policy become more likely, we
foresee the possibility of more rapid GDP growth. Thus, we see an upside risk for GDP growth.
Concerning unemployment, the current rate is at the low end for an economic expansion. If a recession were
to occur, the unemployment rate would rise substantially. We have no compelling reason to predict a recession
during the forecast horizon. On the other hand, we also see the possibility of further declines in the unemployment
rate. Overall, we see the risks as broadly balanced.
For PCE infation, we place negligible weight on the prospects of Phillips Curve e ects. There is, however,
a risk that Phillips Curve e ects reassert themselves and infation moves higher as the unemployment rate falls.
It is also possible that infation expectations drift higher and become unanchored. Thus, we see the risks on this
variable to be weighted to the upside.
For core PCE infation, the risks are the same as for PCE infation. In addition, this variable depends on the
behavior of energy prices and an upward price shock is a possibility. Overall, we see the risks as weighted to the
upside.
Respondent 4: We see the risks to the outlook for growth as broadly balanced. Our forecast assumes a modest
impetus to growth from fscal policy in 2018; we see the odds as roughly equal that the policy process will result in
a bit more or a bit less stimulus. Similarly, the likelihood of stronger world-wide demand appears balanced against
the potential for some future weakness, most notably from a slowdown in China. With regard to infation, we judge
that the risks to the forecast continue to be balanced. Once again, this was a close call. We could see stronger
fscal e ects on growth that put more upward pressure on infation than we have assumed. But persistently low
infation readings, as well as the continued low levels of infation compensation in fnancial markets and some survey
expectations, remain disconcerting. Although these latter risks seem somewhat more important, we did not feel
they were enough to tip the balance of risks to the downside.
Respondent 5: Risks for output and infation are weighted to the downside because the e ective lower bound
limits the ability of monetary policy to respond to adverse shocks. For the unemployment rate, there is a countervailing risk that it will fall more rapidly if the labor force participation rate resumes its downward trend. Therefore
I see the risks to unemployment as broadly balanced.

Respondent 6: N/A
Respondent 7: N/A

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December 12–13, 2017

Respondent 8: Risks to economic activity appear broadly balanced. We have exceeded our objective of
maximum sustainable employment according to a wide array of labor market measures and will remain beyond
full employment for the next few years. The main uncertainty is by how much and for how long.
There remains considerable uncertainty regarding the size and timing of proposed changes to corporate and
personal taxes and their ultimate e ects on the economic outlook. This uncertainty will diminish only when the
fnal legislation is formulated and fully implemented.
Although the e ective lower bound somewhat constrains our ability to respond to adverse shocks, this constraint
is becoming less important given that appropriate policy calls for steady increases in the target funds rate over the
next two years.
Despite soft infation readings earlier this year I continue to see infation moving gradually to our 2 percent goal
and view the risks to this forecast as balanced. On the upside, there is the risk that very tight labor markets may
foster a more rapid increase in infation than I assume in my forecast. On the downside, there are other factors,
such as muted healthcare services infation, which if sustained could slow the pace of infation going forward.
Respondent 9: While I see some potential upside for regulatory reform, broader prospects for thoughtful
policy changes have faded. In particular, prospective tax changes are unlikely to result in meaningful long-term
improvement in GDP growth, but will leave us with a higher level of debt to GDP at a time when the U.S. government
is already highly leveraged.
Respondent 10: N/A
Respondent 11: N/A
Respondent 12: Ours is a quantitative judgment based on the di erence between the central projection and
the expected value from the New York Fed forecast distribution. We see two-sided risks associated with any likely
tax legislation. It could have more positive supply-side and/or demand-side e ects than we currently anticipate;
however, because the legislation also appears to have signifcant regional and sectoral distributional e ects, frictions
in capital stock adjustment and in labor mobility could lead to adverse supply-side and demand-side e ects. In
addition, the risks associated with other changes in U.S. fscal, regulatory, and trade policies as well as notable
outstanding geopolitical issues still seem two-sided. Therefore, as in September, we judge the real activity risks to
be roughly balanced over the forecast horizon.
Infation risks also remain roughly balanced throughout the forecast horizon. Longer-term infation compensation, the Michigan survey long-run infation expectations, and our SCE 3-year infation expectations remain
at low levels, consistent with continued downside risks. By contrast, global disinfationary forces appear to have
abated somewhat and fnancial conditions have eased, indicating still-signifcant upside risks. Also, the October
CPI and PCE price index were consistent with transitory factors beginning to fade, as is implied in our central
projection. Measures of underlying infation have provided varying signals since the September FOMC meeting,
with some rising modestly, some being little changed, and a few falling slightly.
Respondent 13: My assessment of the overall risks to real activity continue to be broadly balanced, although
it is worth noting that I have modestly steepened the path of the federal funds rate in my current projection, which
has the e ect of diminishing the asymmetric risks associated with the zero lower bound.
Because my current outlook for real activity is somewhat stronger than in my previous forecast (thereby
implying somewhat tighter labor market conditions over the medium term), I no longer view the risks to the
infation outlook as weighted to the downside.

Respondent 14: N/A
Respondent 15: I continue to view the risks around my forecast as broadly balanced, conditional on a monetary
policy path that is somewhat steeper than the median path in the September SEPs.
Since the September SEP, a tax package a ecting households and businesses has become likely, although details
in the fnal package are still being negotiated. My baseline forecast continues to incorporate a small fscal stimulus
e ect from the tax package, on the order of an addition of 0.25 to 0.50 percentage points to Q4/Q4 GDP growth in
2018-2020. Even without the tax cuts, there is momentum in the economy given healthy underlying fundamentals.

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I see the risks due to fscal policy as being balanced: there are upside risks to growth in the near term because the
tax cuts could be more stimulative than I’ve assumed, but there are downside risks in the out years and beyond the
forecast horizon because higher fscal defcits could necessitate reduced fscal spending.
The global outlook has improved over the last year, though there remain some vulnerabilities in emerging
market economies, as well as geopolitical risks. Even with a gradual reduction in the level of accommodation,
monetary policy is expected to remain accommodative and supportive of growth in many countries.
I continue to see infation risks as roughly balanced. After softening since the beginning of the year, the most
recent infation readings have shown some stability. My modal forecast is that infation will gradually return to
our goal of 2 percent over time, with this goal being achieved on a sustainable basis in the frst half of 2019.
If the dynamics of infation have fundamentally changed, then I may be underestimating the persistence of
low infation and this persistence might mean I am overestimating the long-run unemployment rate. This would
mean infation would be weaker than in my modal forecast. But if the forces weighing on infation are transitory
(as assumed), if labor markets tighten more than I expect, or if nonlinear Phillips curve dynamics begin to kick
in, infation could move higher than I expect, especially if the withdrawal of monetary accommodation is slower
than I’ve assumed. Even absent a change in the slope of the Phillips curve, a slower withdrawal of monetary
accommodation than I’ve assumed poses an upside risk to my infation forecast.
After appreciating over most of the last two and a half years, the dollar has depreciated this year. I assume
that this downward trend will reverse given the strength in the U.S. economy and prospects for tighter monetary
policy. However, a continuation of the depreciation poses an upside risk to my infation forecast.
Risks to fnancial stability from very low interest rates appear to be contained so far. There does not seem to be
excessive leverage and banks are holding relatively high levels of capital and liquid assets. However, equity prices
appear to be somewhat high relative to earnings even accounting for the low level of interest rates, and commercial
real estate valuations continue to be lofty. These signs, the relatively low level of interest rates, and the outlook
for continued strength in the economy suggest that fnancial stability risks could rise should we fail to remove
monetary policy accommodation at an appropriate pace. Indeed, the low level of market volatility coupled with
the low equity premium suggests that these risks are building.

Respondent 16: N/A

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Key Factors Informing Your Judgments regarding the
Appropriate Path of the Federal Funds Rate
Question 3(b). Please describe the key factors informing your judgments
regarding the appropriate path of the federal funds rate. If, in your
projections for any year in the projection period, the unemployment rate
for that year is close to or below your projection for its longer-run normal
level and infation for that year is close to or above 2 percent, and your
assessment of the appropriate level of the federal funds rate for that year
is still signifcantly below your assessment of its longer-run normal value,
please describe the factor or factors that you anticipate will make the
lower-than-normal funds rate appropriate. If you have revised your
estimate of the longer-run normal value of the federal funds rate since the
previous SEP, please indicate the factor or factors accounting for the
change. You may include any other comments on appropriate monetary
policy as well.
Respondent 1: Recent data are consistent with infation moving toward 2 percent in the near term. With
infation expectations well anchored, I believe that gradual increases in the federal funds rate will continue to be
appropriate. I also believe that balance sheet normalization should continue to play out in the background or on
“autopilot”as has been discussed.

Respondent 2: My projection for the appropriate path of the federal funds is lower over the next two years
compared to September. While I expect somewhat stronger economic growth and lower unemployment due to
fscal policy, I am concerned about the realization of generally soft infation over the course of 2017. Looking ahead,
I anticipate that a slightly more accommodative path for monetary policy will be necessary to return infation to
its target level over the medium term.

Respondent 3: A target of 1.38 percent for the forecast horizon is consistent with our assessment of current
economic conditions and the convergence of infation, GDP growth, and unemployment to their values in a regime
characterized by low productivity growth and a low real interest rate on short-term government debt. In the event
of a regime change, such as a shift from low productivity growth to high productivity growth, our target federal
funds rate will change.

Respondent 4: We think it is appropriate to leave the range for the funds rate unchanged at this meeting,
followed by two increases in 2018, four in 2019, and one in 2020. We assume balance sheet normalization proceeds
according to the announced plan.
We believe this policy package represents a balanced approach to achieving both of our dual mandate objectives.
Given our projection of continued low infation in the near term, as well as considerable uncertainty over its outlook,
we think it is appropriate to forego increasing the funds rate until 2018. Eschewing a rate change at the current
meeting is meant to send a strong signal to markets that we are concerned about infation developments. Even with
this delay, we feel policy has more work to do in order to solidify infationary expectations symmetrically around
2 percent, which is a pre-requisite for achieving our infation objective. That is why we have only two increases in
2018, and why in 2020 we have the funds rate at 3.00 percent, only 25 basis points above its longer-run level, even
though we project infation at 2.1 percent and the unemployment rate a full percentage point below the natural
rate. This confguration should generate some further modest overshooting of 2 percent infation beyond 2020,
which would reinforce the symmetry of our infation target and mitigate the risk that infation expectations could
settle in below 2 percent.

Respondent 5: Infation continues to come in below our 2 percent target; in fact it had been falling since
February until recently. Even though the labor market continues to strengthen, it is not clear that we have

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reached maximum employment as the labor force participation rate and employment-population ratio for prime
age persons remain well below their pre-recession levels, and wage growth remains subdued. Given the persistent
undershooting of our infation target, I believe that appropriate monetary policy implies a very gradual path for
the federal funds rate.

Respondent 6: N/A
Respondent 7: N/A
Respondent 8: The labor market has exceeded full employment according to various measures and I expect
it to continue to strengthen over the next year. I expect the unemployment rate to fall below 4 percent next year
before gradually returning to its natural rate of 4.7 percent. I expect the strong economy gradually to push infation
up over the next few years, reaching our 2 percent objective by 2019 and a modest overshooting in 2020.
My assessment of appropriate policy is generally informed by looking at simple rules that adjust for the zero
lower bound and assume a low natural rate of interest of 1/2 percent.
My fed funds path is fatter than some simple rules would suggest. This refects an infation rate that has been
rising only gradually toward our objective from below. Beyond the near term, I envision a path for the fed funds
rate that modestly overshoots its long-run level in 2019 and 2020 as policy acts to unwind the overshooting in
infation and labor market conditions.

Respondent 9: As the economy’s momentum carries it further past full employment and eventually past
2-percent infation, it will be appropriate to transition to a mildly restrictive policy stance. A mildly restrictive
policy maintained over several years will give us our best chance of moving the economy along a smooth glide path
back to full employment and price stability.
Risks to my funds-rate projections are balanced. However, my confdence that the funds-rate path I have
specifed will prove to be appropriate is lower than usual. I am cognizant that the 10-year Treasury yield now
stands at approximately 2.35 percent. At issue is whether we can slow the economy to a sustainable rate of growth
without inverting the yield curve. I think that we can, but the margin for error is small.
Respondent 10: My judgment regarding the appropriate path of the federal funds rate is predicated on
promoting sustainable economic growth and price stability. The economy has reached full capacity and we have
essentially achieved price stability, yet I view the appropriate level of the federal funds rate to be below my estimate
of its longer-run level in 2017 and 2018. That the federal funds rate is still low despite the economy’s return to full
employment and price stability refects the Committee’s past decisions, and I view a gradual path of the funds rate
as important to promote economic and fnancial stability.

Respondent 11: Optimal control policy simulations as reported, for example, in the current Tealbook prescribe a much higher path for the federal funds rate than the path penciled in here. While the simulations penalize
changes in the federal funds rate, aggressive policy tightening could increase the probability of a recession in ways
that our linear models are unable to capture. Our projected path for the federal funds rate balances this concern
against the concern that continuing to provide monetary policy accommodation when the economy has already
surpassed full employment will create distortions that, too, increase the probability of a future downturn. Our
estimate of the longer-run normal value of the federal funds rate now stands at 2.75 percent. Lower values of the
equilibrium federal funds rate are becoming more diÿcult to reconcile with the declines in the unemployment rate
we have seen so far this year.
Respondent 12: The principal factors behind our assessment of the appropriate path for monetary policy are
the current state of the economy, our central economic outlook, and our balance of risks around the outlook. The
steepness of the policy path also depends on how overall fnancial conditions respond to our policy actions.
Even though the real growth outlook has improved and fnancial conditions have eased, the near-term infation
outlook remains subdued and the balance of risks is little changed. Consequently, our projection of the appropriate
policy path is only modestly di erent from that in the September SEP submission: The target FFR ranges at the
end of 2017, 2018, and 2019 are 1 1/4 – 1 1/2 percent, 2 – 2 1/4 percent, and 2 3/4 – 3 percent respectively. For 2020, we
anticipate that a small further tightening of the policy stance will be needed to ensure achievement of the FOMC’s

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objectives over the medium term following the small infation overshoot and the unemployment undershoot. Our
policy path remains fairly shallow and is consistent with the gradual rising path of the natural interest rate as
projected by the New York Fed sta DSGE model.
Our estimate of the longer-run equilibrium real short-term interest rate remains in the range of 0 – 2 percent,
consistent with the estimates and forecasts from a variety of models. Adding the objective for infation (2 percent)
gives our estimated range for the nominal equilibrium rate as 2 – 4 percent. Our modal projection is in the lower half
of this range due to the combination of continued fairly subdued productivity growth, low longer-term sovereign
yields, continued indications of a global “saving glut,” and demographic factors. As reported in the response to
question 3(a) we maintained our point estimate of the nominal equilibrium rate at 2 3/4 percent. Our appropriate
policy path thus slightly overshoots the longer-run FFR.

Respondent 13: My assessment that the federal funds rate will need to rise gradually over the next several
years rests on three assumptions. First, the real neutral rate is currently close to zero, implying that one or two
additional hikes will be needed in the near term in order to stabilize the unemployment rate. Second, the nominal
neutral rate is likely to rise modestly over the next several years as a result of easier fscal policy, somewhat faster
productivity growth, and a rise in infation to 2 percent. Finally, the return to 2 percent infation will be facilitated
by the maintenance of strong labor conditions, which in turn depends on not raising the funds rate too quickly.
Respondent 14: As has been the case for some time, there is a tension between the data on the real economy,
which are quite strong, and the infation data, which have remained below our objective. Tipping the balance
for me at the current meeting is the high likelihood of tax cut legislation, which is likely to be quite stimulative
over the next several years: In the current proposals, tax cuts are strongly front-loaded, defcit-fnanced, and
business-focused. They are also quite large by historical standards, especially given how late in the cycle they will
arrive.
Over the medium run, the funds rate in my projection rises gradually, balancing the increase in aggregate
demand – which is in part fscally-related – against infation that is likely to remain below our objective for some
time. On balance, the path in this projection is shallow enough to convince the public that the Committee is
committed to its infation objective – and should thus help boost underlying infation over time – while at the same
time curbing excessive overshooting on the real side of the economy.
I have boosted the longer-run federal funds rate in my projection by 25 basis points, to 2.75 percent, refecting
the likely e ect of the higher level of government debt.

Respondent 15: I continue to view a gradual upward path for the funds rate as appropriate; the slope of
the path will depend on the evolution of the economy, medium run outlook, and the risks around the outlook, in
particular, for infation and labor markets.
Over the forecast horizon, I project growth above trend and the unemployment rate below my estimate of its
longer-run level. I expect some frming in labor compensation measures, in line with anecdotal reports of increasing
wage pressures across a range of skill groups. However, if productivity growth remains low, wage gains will likely
be slower than in past expansions.
I continue to see the softness in infation this year as largely refecting transitory factors rather than a fallo in
demand that would put more persistent downward pressure on infation. The stability in recent infation readings
and in infation expectations lends some support for this view. My modal projection has infation gradually
increasing to our goal over the forecast horizon. However, if there has been some fundamental change in infation
dynamics, it could be that low infation will be more persistent, even as labor markets remain tight and growth
remains above trend. In such a scenario, delaying further rate increases or taking other actions (such as forward
guidance) to try to raise infation may be appropriate, but this would have to be balanced against labor market
developments and fnancial stability risks.
Given that monetary policy a ects the economy with a lag, I believe appropriate monetary policy should refect
both actual and projected progress toward the Committee’s goals. Based on the outlook and risks, I believe it will
be appropriate for the FOMC to gradually move rates up over the course of the forecast horizon. This strategy
would seem to prudently balance the risks of stronger than expected growth leading to overheating in labor markets,
which would necessitate sharper, and potentially destabilizing, rate increases in the future versus the possibility
that the softness in infation will persist and lead to an unanchoring of infation expectations and possible loss of
Fed credibility. I assume that the funds rate will end 2019 at a level slightly higher than my longer-run estimate of
3 percent, and then move down to 3 percent in 2020.

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Respondent 16: My projection for the federal funds rate is informed by a simple policy rule with a gradual
rise in the short-run equilibrium funds rate. I lowered the longer-run normal federal funds rate in my projection
by 25 basis points, in conjunction with a mark-down to longer-run potential GDP growth.

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Forecast Narratives
Question 4(a). Please describe the key factors, potentially including your
assumptions about changes to government policies, shaping your central
economic outlook and the uncertainty and risks around that outlook.
Respondent 1: Economic growth is likely to continue to be slightly above trend in 2018 and 2019. Debtfnanced tax cuts are likely to have small, temporary e ects on aggregate demand; in my projection, they add 0.1
percent to real GDP growth in 2018, 2019, and 2020. In addition, the rising federal debt-GDP ratio is likely to put
upward pressure on long-term interest rates, which will likely prove to be an increasing drag on growth over the
longer term.
Respondent 2: My forecast calls for slightly above-trend growth of 2.4 percent in 2018, edging down to 2
percent in 2020, which is about my estimate of trend growth. I now expect some stimulus from fscal policy and so
have slightly more output growth and lower unemployment in my projection compared to last time. However, my
uncertainty about the magnitude and timing of tax reform and fscal stimulus is high. I expect the unemployment
rate to remain below my estimate of the natural rate over the forecast horizon as output grows at a healthy pace
and the labor force participation rate declines further. Headline infation was soft in 2017 and while it may have
been held down by temporary factors, my concern about underlying trend infation is now higher. Consequently,
I have a more gradual pace of federal funds rate increases over the next two years. My forecast calls for infation to
rise gradually to a level that is slightly above target 2019 – but infation then moves down to the 2 percent target
in 2020.
Respondent 3: Our forecast continues to use a regime-based conception of outcomes for the U.S. economy.
In our conception, there are multiple regimes and we appear to have nearly converged to one of them. The current
regime is viewed as persistent, and we see no reason to forecast an exit from the current regime over the forecast
horizon. We are, of course, paying close attention to many factors that might precipitate a regime change, such
as a change in tax policy that might move the economy to a high productivity state. Monetary policy is regimedependent and can be viewed as optimal given the current regime. Longer term, the economy may visit other
regimes, such as ones associated with the previously mentioned higher productivity growth, a higher real return
to short-term government debt, or recession. If the economy transitions to any of these states, all variables may
be a ected and, in particular, the optimal regime-dependent policy may require adjustment. However, predicting
when these transitions may occur is very challenging, so we forecast that the economy will remain in the current
regime over the forecast horizon.

Respondent 4: The fundamentals underlying private domestic fnal demand are solid and stronger than we
were seeing in September. Accommodative monetary policy, a healthy labor market, and improved household
balance sheets are supporting solid gains in consumer spending and investment. Our baseline scenario envisions
such momentum carrying forward into next year. We also assume growth in 2018 and 2019 will be boosted a bit less
than 1/2 percentage point per year due to tax cuts, with about equal parts coming from investment and consumption.
We assume the tax bill adds a tenth of a percentage point to growth in 2020, entirely through investment. The
gradual removal of monetary accommodation and a smaller impulse from fscal policy are projected to bring GDP
growth down in 2019 and 2020. On the supply side, we project the tax bill to increase capital deepening and labor
supply, and so we have nudged up our potential growth rates for 2018 through 2020. In sum, we now expect growth
to run nearly a full percentage point above potential in 2018 before slowing gradually to potential in 2020.
We think the natural rate of unemployment currently is 4.6 percent and that it will trend down to 4.5 percent
by 2020. So, at 4.1 percent, the current unemployment rate is 50 basis points below our estimate of the natural
rate. We expect the unemployment rate to move down further, reaching 3.5 percent in 2019 and then staying there
in 2020, leaving a 1.0 percentage point gap from the natural rate we expect to prevail at that time.
We have maintained our view that the string of disappointing news on infation implies that the persistent
component in underlying infation is currently below 2 percent. But we are projecting factors that will help
o set the downdraft from the persistent component and subsequently help boost this trend closer to our infation
target. With unemployment projected to undershoot the natural rate substantially, resource pressures should
provide a more palpable lift to infation going forward. Furthermore, our assumption of a shallow path for policy

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normalization and a strongly communicated commitment to a symmetric 2 percent infation target play critical
roles in solidifying infation expectations and helping to bring actual infation toward target. While we see infation
reaching only 1.7 percent next year, but by 2020 we see a modest overshooting of our infation objective.

Respondent 5: Near-term core infation has remained well below target and the economy continues to add
jobs without increasing wage pressures. This reinforces my assessment that there continues to be slack in the
economy. At this point I am concerned that the increases in the federal funds rate since late 2015 may have had an
adverse e ect on infation expectations.
I now expect that a tax cut will be enacted in the near future. I expect that it will somewhat increase both
output and employment.

Respondent 6: I believe that the enactment of signifcant tax cuts will provide a boost to both the near-term
economic outlook as well as to the long-term potential growth rate of the economy. The boost to potential growth
allows GDP growth to remain relatively strong without pushing up infation all that much. I think there is a chance
that the e ects of the tax cut could be even larger than I have written down, suggesting that the risks to my GDP
forecast are on the upside.

Respondent 7: Data on the labor market, nonfarm productivity , and infation have all been somewhat
stronger than I anticipated in my September projection, and in addition I have incorporated e ects from the tax
package now that the details are better known and the likelihood of passage is high. As a result, I now expect
output to grow faster and the unemployment rate to decline more over the next several years, and while I have also
slightly lowered my estimate of the natural rate, my projection now incorporates a faster pace of tightening in 2018
in order to respond to a larger and more sustained reduction in economic slack.
Respondent 8: I have increased my estimate of the economy’s longer run growth rate by 0.2 percentage
point. This decision is based on a reassessment of the underlying trend growth rate of labor productivity and the
incorporation of supply-side e ects stemming from anticipated corporate and personal income tax cuts.
The economy continues to expand at a solid pace relative to trend, which has pushed the unemployment rate
lower. Going forward, the strength in labor market hiring, faster wage growth, and gains in household wealth should
support continued consumption growth. The outlook for fxed business investment appears to have improved given
the recent tax proposals and the continued expectation of lighter regulatory burdens. However, there is substantial
uncertainty regarding the size and timing of the e ects of the fscal stimulus.
In this environment, I expect the economic recovery to proceed at a pace that is above potential. Output and
unemployment gaps were closed in 2016. With substantial monetary stimulus still in place, I expect these gaps to
overshoot for the next few years, leading to a gradual pickup in infation over the next few years. I continue to expect
infation to reach our 2 percent target in 2019, and to overshoot slightly in 2020. Normalization of monetary policy
will help bring infation, growth, and unemployment back to their long-run sustainable levels by the following year
or two.
Respondent 9: Business pricing power is being increasingly challenged and proft margins are under pressure.
Companies are seeking to defend margins by investing in technology that allows them to replace people and improve
productivity. They are also, increasingly, looking to merger activity as a way to lower costs and increase scale.
This aggressive pursuit of lower costs continues to act as an infation headwind.
Nevertheless, with the labor market tight and still tightening, cyclical infationary forces are building. We
should see confrmation of those building pressures toward the middle of 2018, but I do not expect to see infation
hit 2 percent with regularity until sometime in 2019.
The more immediate danger is the economic excesses and imbalances that can develop when frms and
households come to believe that above-trend growth can be sustained. Unrealistic expectations lead to unwise
commitments–commitments that have the potential to produce out-sized responses when growth slows and imbalances must be unwound. While real imbalances are not yet evident, they have the potential to develop if we do
not continue to remove policy accommodation.
Financial imbalances are another threat. By many measures, valuations are rich. That suggests a need for
heightened vigilance to monitor the build-up of leverage and other imbalances often associated with historically
high levels of valuation. A correction could lead to a sudden tightening in fnancial-market conditions.

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Our“Statement on Longer-Run Goals and Monetary Policy Strategy”recognizes that realized infation is not
an adequate guide to policy by itself: It calls for us to look at the size and likely persistence of full-employment
overshoot in addition to the size and likely persistence of infation undershoot. The unemployment rate cannot
stay below the natural rate indefnitely, and a large full-employment overshoot necessarily implies either a very
sharp or a very persistent slowing of output and employment growth at some point in the future–a slowing that will
leave the economy vulnerable to adverse shocks and policy mistakes. Our best chance for achieving and sustaining
price stability is to extend the expansion of the US economy, and our best chance for extending the expansion is to
moderate it, sooner rather than later.

Respondent 10: Government policies: As the likelihood of an expansionary fscal package has increased
signifcantly since September, I now assume a tax reform will boost real GDP growth by 0.2 percentage point per
year in 2018, 2019, and 2020, and lead the unemployment rate to decline by 0.1 percentage point per year in this
period. I see negligible e ects on headline and core PCE infation. These assumptions include multiplier e ects
and take into account the o setting e ects of a higher path for the federal funds rate. Such a tax reform would
reinforce my view that four increases in the federal funds rate will be appropriate in 2018. For 2019 and in 2020,
such a tax reform would call for one additional rate hike in each year.
Modal forecast: My forecast for real GDP growth is characterized by above-trend growth in the period from
2017 to 2020, which is partly attributable to the expansionary fscal policy stance. Without the fscal stimulus,
and as monetary policy accommodation is gradually removed, real GDP would likely increase at its longer-run
rate from 2019 onward, based on modest increases in the labor force and moderate productivity gains. Despite the
softness in consumer prices this year I expect core infation to rise to near 2 percent next year, consistent with real
GDP above potential and tightening labor market conditions.
Uncertainty and risks: I view uncertainty surrounding my projections as broadly similar to levels of uncertainty
over the past 20 years, considering the magnitude of historical projection errors and current economic and policy
uncertainty at home and abroad. The risks to economic growth, infation, and unemployment appear broadly
balanced. On the downside, possible changes in government policies appear to be a source of uncertainty, including
the risk of a deterioration in fnancial market conditions and broader sentiment if tax reform disappoints and
the risk of more restrictive trade policies. Furthermore, an overly expansionary monetary policy could lead the
unemployment rate to signifcantly undershoot its natural level, as periods of overheating have historically often
ended with a recession. In addition, an overly expansionary monetary policy would increase fnancial stability
risks. Upside risks to my forecast stem from greater-than-expected momentum in the economy, the possibility that
elevated business confdence translates into sustained increases in investment and productivity, and the possibility
that tax reform may increase infationary pressures.

Respondent 11: Incoming data have been roughly in line with previous expectations. As a result, our
assessment of the underlying strength of the economy in 2017:H2 has not changed since September. Financial
conditions, however, remain more favorable than previously thought. In particular, equity valuations are higher
than expected, and the tightening of monetary policy so far does not appear to have translated into noticeable
upward pressures on long-term yields. For these reasons, the near- and medium-term outlook for real activity has
been revised up. With the unemployment rate already running somewhat below our expectations, we now expect
the unemployment rate to drop below 4 percent in 2018 and 2019.
The contours of the outlook have not changed. Near-term growth is boosted not just by the favorable conditioning assumptions in terms of household net worth and interest rates, but also by the fscal stimulus. While
uncertainty about the package has not been fully resolved, the Board sta ’s recent upward revision to their assessment of the e ect of the stimulus on real activity highlights the risk that the pace of growth might be even stronger
than what we are currently envisioning. By the end of 2018, we expect the unemployment rate to be at 3.7 percent.
The tightening of monetary policy brings the pace of GDP growth near potential in 2019, and below potential in
2020. As a result, the unemployment rate is by then projected to start to increase modestly. Recent readings on
prices are consistent with the view that the softness in infation earlier this year was a temporary phenomenon.
Nevertheless, core infation measures have yet to show a noticeable acceleration relative to the readings prevailing
in 2015 and 2016. With the unemployment rate projected to stay below its equilibrium level over the forecast
horizon, we expect infation to eventually increase above 2 percent.
The current forecast is conditioned on a 25 bp increase in the federal funds rate at the current meeting, and on
future rate increases that cumulate to 275 bp by the end of 2020. By historical standards, this represents a cautious
pace of policy tightening given that the unemployment rate is already below its estimated equilibrium level. Such

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an approach tries to strike a balance between the fnancial stability risks associated with an even more gradual
increase in rates, and the risk that faster policy tightening may increase the probability of the economy falling into
a recession. It is nevertheless important to recognize that the past does not provide much guidance in terms of how
to conduct policy so as to achieve a soft landing when the economy is beyond full employment. The optimal policy
mix under current circumstances may well entail an active use of supervisory tools.
We view the risks around the GDP growth outlook as roughly balanced. As already mentioned, there is the
risk that the tax cuts will stimulate activity by more than what we are currently expecting. At the same time,
the historical evidence highlights the risk that a prolonged period of monetary policy tightening may weaken real
activity by more than we think. As concerns prices, there is the possibility that the equilibrium unemployment rate
is lower than what we are currently estimating. A countervailing risk is a nonlinear response of infation associated
with low levels of the unemployment rate. From a policy standpoint, it is worth mentioning that long-term yields
remain very low by historical standards, even when taking into account a reduction in the equilibrium real rate of
interest. If this pattern persists, the federal funds rate may need to increase by more than what we are currently
assuming.

Respondent 12: Our projection for real GDP growth in 2017Q4 is about 2 1/2 percent (annual rate), resulting
in a Q4/Q4 growth rate of 2.5 percent for 2017, slightly above that in the September SEP projection. Moreover, the
U.S. and global economies appear to have greater forward momentum going into 2018 than we anticipated earlier
this year. In particular, manufacturing activity has rebounded smartly in the U.S. and the euro area, and to a lesser
extent in China. Relatively low inventories-sales ratios in the U.S. should support manufacturing activity over the
near term. In addition, there is clear evidence of a sustained strengthening in the pace of business investment, a
development we have been expecting for some time. In response to these signals, we have signifcantly upgraded
our real growth projection for 2018 since the September SEP submission, even before we had begun to factor in
possible tax legislation.
Given the high likelihood that a tax reform/cut will be enacted in the near future, after deferring until this
cycle, we have now incorporated the broad outlines of this legislation into our modal forecast. The House and
Senate versions are conceptually similar, lowering marginal income tax rates for individuals and businesses while
broadening the tax base. Based on our initial assessment, we anticipate that the reduction of individual tax
liabilities will be about 0.2 percent of GDP in 2018 and then rise around 0.6 – 0.8 percent of GDP in 2019. The bulk
of this reduction will accrue to upper-income households with relatively low marginal propensities to consume.
Thus, while we anticipate some boost to real consumer spending, we also expect the personal saving rate to rise by
1/2 - 3/4 percentage point, as occurred following the tax cuts of the early 2000s.
The magnitude of the cuts in corporate taxes is less certain, as the House version has the 20 percent corporate
tax rate e ective in 2018 while the Senate version delays it to 2019 (also, there has been discussion of setting the
marginal rate at 22 percent in the bill reconciliation). More importantly, we are not certain about the impact that
a lower corporate tax rate and full expensing of investment will have on business capital spending. At this point,
we have boosted business fxed investment moderately in both 2018 and 2019.
The combined impact of these assumed e ects on real PCE and real BFI raises projected growth of fnal sales
to domestic purchases by roughly 1/4 percentage point in both 2018 and 2019. Some of this increase in domestic
demand is satisfed through more imports. In addition, it is likely that fnancial conditions will tighten somewhat
more over the forecast horizon than we previously thought. We thus anticipate that the tax bill boosts projected
growth rates for 2018 and 2019 by about 0.2 percentage point, to 2.5 percent (Q4/Q4) and 2.0 percent, respectively.
For now, we expect those e ects to fade by 2020, so that real GDP growth in that year is projected to fall to just
below its longer-run potential rate.
We want to emphasize that these projected impacts of the tax bill are very tentative at this point, and may be
adjusted as the legislation is fnalized and our thinking on its impacts progresses.
With a stronger growth outlook, we have lowered the path of the unemployment rate over the forecast horizon.
It is now expected to reach 3.8 percent by 2018Q4, and then gradually rise to 4.0 percent by 2019Q4 and 4.2 percent
by 2020Q4. The path of the unemployment rate would have been even lower except that we anticipate somewhat
higher productivity growth and labor force participation.
Finally, with less slack in the economy, we have raised slightly our infation projection. We anticipate that
it overshoots the FOMC objective, reaching 2.3 percent (Q4/Q4) in 2019 and 2.2 percent in 2020. We see this
overshoot as appropriate to ensure that infation expectations are consistent with a symmetric objective of 2
percent.

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Respondent 13: Key factors include: incorporation of the macroeconomic e ects of the tax provisions now
under consideration in Congress; a gradual pickup in productivity growth over the next few years; continued solid
growth in global activity; and a gradual rise in the federal funds rate that will bring it into line with its neutral
rate next year and keep it in line with a (rising) neutral rate thereafter. This monetary policy should facilitate the
maintenance of strong labor market conditions, which in turn will speed the return to 2 percent infation.
Important risks to this outlook include: the possibility that the macroeconomic e ects of the changes in tax
policy now in train will turn out to be materially di erent (up or down) from what I have assumed; the risk that the
neutral rate is currently higher than I have assumed, or will fail to rise as I anticipate; and that returning infation to
2 percent will prove to be more diÿcult that I have assumed, perhaps because infation expectations are consistent
with PCE infation of less than 2 percent.
Respondent 14: In my projection, I have assumed that a large tax cut, similar to the proposals that have
passed both the House and the Senate, will be enacted into law. My estimates of the e ects of the tax cuts are
broadly similar to those of the Board sta , with real GDP growth boosted 0.3 or 0.4 percentage point per year over
the medium term, with about a third of the boost to real GDP coming in the form of higher potential GDP. One
exception is that I have assumed a somewhat more rapid ramp-up in investment spending than the sta , refecting
a greater initial response to the expensing provisions.
Respondent 15: The fundamentals supporting the expansion remain favorable, including accommodative
monetary policy, household balance sheets that have improved greatly since the recession, continued improvement
in labor markets, and relatively low oil prices. The likely tax package should provide a moderate boost to growth
over the forecast horizon. Consumer and business sentiment remain positive. Consistent with the data, business
contacts report further tightening in labor markets, more widespread diÿculties in fnding qualifed workers, and
the increasing need to raise wages in order to retain workers across a range of skill groups and occupations. The
global outlook has improved over the last year. Infation rates here and abroad are fuctuating around a general
upward trajectory, supported by accommodative monetary policy. However, the infation levels generally remain
below targets.
I project above trend growth and that labor market strength will continue and move the economy somewhat
further beyond maximum employment.
Readings on infation have come down since the start of the year, with transitory factors playing a role, but
recent readings have shown some stability. Measured year-over-year, PCE infation is notably higher than it was
in 2015 and most of 2016 and is not that far from our 2 percent goal. I view infation expectations as reasonably
well-anchored. This, coupled with continued strengthening in labor market conditions and ongoing economic
growth, suggests that infation will gradually move to 2 percent on a sustained basis over the forecast horizon.
I view overall uncertainty as roughly comparable to the historical norms of the last 20 years. As described
above, while there are a number of risks to my outlook, I view them as broadly balanced for both the real economy
and infation.
Respondent 16: My outlook has output growth continuing to outstrip potential next year, before converging
to trend by 2020, supported by a moderate pace of consumption and investment spending. Growth next year
receives a modest boost from changes to the existing tax code that accelerate capital investment plans, pulling
some investment spending into 2018. My judgment that the legislative changes will only lead to modest changes
in output growth is informed by recent survey results from businesses on their likely responses to the proposed tax
reform and sentiment from district contacts.
The risks to my growth outlook are weighted to the upside. Changes to the tax code could have a much more
transformative e ect on growth that I currently expect. I am also treating any positive supply e ects that could
come from increased capital deepening as an upside risk.
Consistent with some of the stronger readings in recent months and given the absence of resource slack in my
projection, I see infation converging to target by the end of next year.
The risks to my infation outlook are balanced. While recent history suggests that the response of infation to
resource slack is somewhat muted, it may be more pronounced at high rates of resource utilization. On the other
hand, after a number of years with below-target infation, it is possible that infation expectations are becoming
entrenched at a level lower than is consistent with our mandate.

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Forecast Narratives (continued)
Question 4(b). Please describe the key factors, potentially including
revisions to your assumptions about changes to government policies,
causing your forecasts to change since the previous SEP.
Respondent 1: In large part, the upward revision in our projection for real GDP growth and the lower path for
unemployment is due to our incorporating new data in the forecast. In addition, our quantitative models suggested
some upside risk to the growth path. And, the prospect of debt-fnanced tax cuts added a small amount to growth
projections.
Respondent 2: I have incorporated a small fscal stimulus from tax reform into my forecast. Lower-thanexpected infation in 2017 has led me to revise down my path for appropriate monetary policy over the next two
years. Under appropriate monetary policy, I now anticipate that infation will slightly overshoot the FOMC target
in 2019.

Respondent 3: Recent data has caused us to change our projections for GDP growth and unemployment for
2017 and 2018.

Respondent 4: We revised our GDP forecast for 2017 up 0.1 percentage point in light of stronger incoming
data. We boosted our forecast for growth in 2018 and 2019 by 0.3 and 0.4 percentage point, respectively, and moved
up the outlook for 2020 by 0.1 percentage point. The bulk of these changes are due to our assumed impact of the
impending tax cuts compared to the more modest assumptions we had in place before; we also revised 2018 up a
tad to refect the greater momentum in the incoming data. Strong investment in 2017 and the additional capital
deepening and labor supply we anticipate coming from the tax cuts have led us to revise upward our assessment of
potential growth by 0.1 percentage points in each of 2018, 2019, and 2020. We see actual growth rising by more than
potential, so that by the end of the forecast period the projected overshooting of potential is 1/2 a percentage point
more than in our September forecast. This confguration also led to a downward revision to our unemployment rate
forecast throughout the projection period. Due to the larger overshooting of potential in our current projection,
we have revised up our forecast for infation in 2019 and 2020 by 0.1 percentage point.

Respondent 5: The unemployment rate has come in a little lower than I had expected.
Previously, I had not incorporated any assumptions about tax cuts in my projections.

Respondent 6: N/A
Respondent 7: N/A
Respondent 8: Since September, I have introduced an assumption of corporate and personal income tax
changes along the lines of the Board sta memo from December 7, 2017. (I previously assumed no changes in tax
policy.) I boosted my projection for growth in 2018 through 2020 based on greater momentum in recent economic
data than I had previously expected as well as the e ects of the tax changes. Based on research showing that fscal
multipliers are lower in expansions and other considerations, I assume a somewhat smaller impact of the tax reform
than that described in the special memo issued by the Board on December 7th.
My infation projection is largely unchanged from September. I continue to expect infation to gradually reach
target by 2019.
Respondent 9: Real growth seems likely to stay stronger for longer than I had anticipated in September.
Partly, that is a result of the stimulus to demand from tax changes that seem increasingly likely to be put into
e ect. Accordingly, I’ve revised upward my GDP growth forecasts for 2017 and 2018, revised downward my
unemployment-rate forecasts over the entire forecast horizon, and call for policy to move a bit faster toward a
mildly restrictive stance. I’ve left my infation projections largely unchanged, however, as I believe it likely that
stronger growth in capital spending will be accompanied by accelerated technology-enabled disruption.

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Respondent 10: The changes in my forecast refect both the change in my fscal policy assumption and the
incoming data since September. The recent data accounts for the upward revision of my projection for real GDP
growth fully for 2017 and partially for 2018. It also accounts for 0.2 percentage point of the downward revision in
my projected unemployment path. With unemployment now projected to move farther below its longer-run level
than in September, I view a higher level of the federal funds rate in 2019 and 2020 as appropriate.
Respondent 11: Conditioning assumptions are, overall, more favorable relative to September. As a result
the real outlook has been revised upward, and so has the outlook for infation.
Respondent 12: As noted earlier, with the passage of tax legislation now appearing to be quite likely, we have
incorporated into our projection a tax package consistent with the broad outlines of the bills passed in the House
and the Senate. We have tentatively assessed that this package will raise modestly the real GDP growth rate in
the next two years, but have no material e ect on the potential growth rate or on the longer-run normal level of the
unemployment rate.
We see stronger momentum in the global economy, which also contributed to raising our projected path for real
GDP growth in 2018 and 2019. Nevertheless, we still expect real growth to slow to near its potential rate in 2020.
The combination of a stronger growth projection along with the recent below-projection unemployment rate has
led us to lower notably the path of the unemployment rate over the forecast horizon.
With projections of tighter resource constraints, we forecast that infation will rise a bit more than we projected
in September, resulting in a slightly larger overshoot of the FOMC’s longer-run infation objective in 2019 – 20.
This overshoot helps to sustain infation expectations and thus helps to achieve the Federal Reserve’s mandated
objectives over the longer run.
Our assessment of the appropriate policy path is unchanged through the end of 2019. In 2020, we now assume
a little bit more tightening, putting the policy rate modestly above its longer-run normal level. The mild overshoot
of the longer-term policy rate is meant to ensure that the overshoot of infation and undershoot of unemployment
are temporary, and the longer-run objectives are met within 5 – 6 years.

Respondent 13: I have raised my projection for real GDP growth modestly to take on board the e ects of
the tax changes now under consideration by the Congress, as well as the movements in equity prices and the dollar
since the September FOMC meeting. I have lowered my projection for the unemployment rate in response to both
the upward revision in my GDP forecast and recent readings on labor market conditions. My infation projection
is essentially unchanged.
Respondent 14: As discussed above, I introduced a tax cut, which was not a feature of my September
projection.
I also reduced my estimate of the longer-run unemployment rate by 0.2 percentage point, largely because
infation – for both wages and prices – remains subdued despite a low unemployment rate.

Respondent 15: The narrative of my forecast has changed little since September. Both growth and labor
market conditions have been somewhat stronger than I assumed, so I’ve edged up my growth forecast and edged
down my unemployment forecast over the forecast horizon. Recent readings on infation have shown some stability
and I continue to expect infation to gradually frm over the forecast horizon. However, there is uncertainty about
the speed of that return to goal.
Given current conditions, the medium run outlook, and risks, I view an upward path of monetary policy as
appropriate and a prudent course that balances the risks given that growth is expected to be above trend, the
unemployment rate is expected to remain below its longer-run level, and infation is projected to gradually move
to our goal of 2 percent over the forecast horizon. My funds rate path is slightly fatter compared to my September
projection for two reasons: (1) I don’t think the Committee will go back to targeting a point rather than a range
for the fed funds rate until sometime in 2020 (or even later); (2) my infation path is slightly shallower.
Respondent 16: I have raised my current year growth projection because of stronger than expected thirdquarter growth. Given the details of the recently passed House and Senate tax reform bills, and the high likelihood
of a bill being signed into law, I have marked in a modest increase to my 2018 growth projection. This increase is

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attenuated by my lowering the trajectory of potential GDP growth in light of the continued sluggish performance
in labor productivity.
My path for the unemployment rate is lower than last submission throughout the forecast horizon, owing to its
recent decline and a downward adjustment of my judgment about the natural rate of unemployment, informed in
part, by a reassessment of the impact of demographic and technological changes on the labor market that appear
to have lowered frictional unemployment.
I have also marked down my projection for the longer-run neutral federal funds rate in conjunction with a
decrease in my estimate for longer-run output growth.

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December 12–13, 2017

Forecast Narratives (continued)
Question 4(c). Please describe any important di erences, potentially
including those related to your assumptions about changes to government
policies, between your current economic forecast and the Tealbook.
Respondent 1: N/A
Respondent 2: My path for appropriate monetary policy remains considerably more accommodative than
the Tealbook over the forecast horizon.

Respondent 3: For GDP growth and infation, our projections are quite similar to those in the Tealbook.
Di erences arise because the Tealbook projections incorporate the idea of a longer-run steady state to which the
economy is converging. Monetary policy has to be set appropriately as the economy transitions to the longer-run
steady state. This tends to imply an upward-sloping policy rate path. Our regime conception, in contrast, views
monetary policy as regime-dependent and the current regime is viewed as persistent. It is acknowledged that the
economy may visit other regimes in the future, but switches to these regimes are quite diÿcult to forecast, this
suggest a fat path for the policy rate over the forecast horizon relative to that contained in the Tealbook. The
Tealbook also has a substantial undershooting of the unemployment rate, far more than our undershooting, before
returning to its longer-run value of 4.7 percent.
Respondent 4: Our federal funds rate path is noticeably below the Tealbook over the next three years, ending
2020 at 3.00 percent. This is only 1/4 percentage point above our long-run normal level, so we do not overshoot the
long-run level of the fed funds rate by nearly as much as the Tealbook does.
Our projections for growth in 2018, 2019 and 2020 are close to the Tealbook’s. They are based on similar
assumptions for the net e ect on GDP growth of tax cuts. Our forecast of potential growth has been adjusted
upward much like the Tealbook, and consequently remains a tenth or two stronger. However, given we assess the
current output gap to be narrower, our output gap at the end of 2020 remains about 1/2 percentage point smaller
than the Tealbook’s. In terms of labor market slack, our projection for the unemployment rate averages about
0.1 percentage point higher than the Tealbook, and we assume the natural rate of unemployment is about 0.1
percentage point lower. Accordingly, our 3.5 percent unemployment rate projection for 2020:Q4 undershoots the
natural rate by less than in the Tealbook.
We do not see quite as much of an increase in infation over the next couple of years as in the Tealbook, despite
our more accommodative monetary policy path. However, we do see this path and additional fscal stimulus
eventually generating a 0.1 percentage point overshooting of our infation objective in 2020, a year sooner than the
overshooting in the Tealbook.
Respondent 5: Relative to the Tealbook, my forecast for economic activity is a bit stronger, but my forecast
for infation is broadly similar. I believe the long-run unemployment rate is lower and the improving labor market
will continue to keep the labor force participation rate from falling, minimizing the downward e ects of healthy job
growth on the unemployment rate. I believe that it is appropriate for the federal funds rate to rise more gradually
than in the Tealbook. Even with lower rates, my projection anticipates that infation will return to target more
gradually than the Tealbook.

Respondent 6: I have a stronger outlook for potential growth than the Tealbook. Consequently, I believe that
the economy can grow faster in the near-term than projected in the Tealbook without much additional upward
impetus to price infation. My more optimistic outlook for potential growth is consistent with a slightly higher
long-run neutral interest rate compared to that in the Sta outlook.
Respondent 7: N/A

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Respondent 8: The December 8th update to the Tealbook projects a more substantial and protracted overshooting of full employment, with the unemployment rate declining to 3.3 percent at the end of 2020, and infation
returning to the 2 percent target very gradually. In my projection, there is more modest overshooting of unemployment and output through early 2019, and those gaps begin to close later in that year. Despite strong fnancial
conditions and favorable consumer sentiment, I am not seeing much evidence in the data that this is translating
into markedly higher growth in business or consumer spending. I see the unemployment rate bottoming out at 3.7
percent by the third quarter of next year.
The gradual removal of monetary policy accommodation tightens fnancial conditions over time and slows
growth to below potential in 2019. This pushes up the unemployment rate to 3.9 percent by the end of 2019.
Finally, the persistent overshooting of full employment pushes infation back to 2 percent by 2019 and results in a
slight overshooting of infation for some time afterwards. Tighter monetary policy brings infation back to target
and unemployment closer to its long-run sustainable level in 2020.

Respondent 9: I have the federal funds rate level o considerably earlier than is assumed by Board sta , and
at a lower level. The key to achieving sustainable price stability, in my view, is to prolong the economic expansion.
Our best chance for prolonging the expansion is to continue to remove accommodation, and then shift to a policy
stance that is restrictive, but only mildly so.

Respondent 10: My assumptions and projections are qualitatively similar to those in the Tealbook.
Respondent 11: The Tealbook is projecting a faster pace of GDP growth over the forecast horizon. Part of the
di erence stems from the Board sta ’s more optimistic assessment of the e ect of the fscal stimulus on economic
activity. Another reason for the di erence is that we are assuming that the tightening of monetary policy will raise
long-term rates by more than what the Tealbook is envisioning. Absent such additional tightening at the longerend of the maturity spectrum, the two forecasts would be closer in terms of unemployment rate outcomes. Our
forecast also features more infationary pressures, though our baseline outlook for infation remains very benign.

Respondent 12: As in the September SEP, there are some notable di erences between the Tealbook forecast
and our projections for the key SEP variables. These di erences partly refect divergences in some of the underlying
assumptions in the two forecasts. In particular, the Tealbook forecast (based on the update of December 8)
incorporates stronger e ects of the likely tax package than we have incorporated into our projections.
Although the projections for 2018 are similar, the Tealbook projects faster growth in 2019 – 20 than in our
outlook. Furthermore, based on its assessment of potential GDP growth, the Tealbook path of real GDP leads to
a notably positive output gap in those years that appears to be larger than our rough assessment.
A major component behind the di erences between the two real GDP growth projections is consumption. The
Tealbook forecast has higher real PCE growth in 2018 – 19 than in our projection; this is a long-standing di erence
between the two forecasts. Related to this di erence, the Tealbook’s projected saving rate is above our projection
in 2018 – 19. In part, the di erence this time appears to refect the Tealbook’s somewhat larger consumption e ect
(and thus smaller saving impact) from the tax package than is incorporated into our projection.
Because the Tealbook has reduced its assumption on the longer-run natural rate of unemployment to 4.7
percent, it is now close to our estimate which stands at 4.6 percent. However, with its stronger growth projection,
the Tealbook projects that the unemployment will undershoot the longer-run natural rate in 2018 – 20 by a larger
extent than in September (again, based on the December 8 update). This pattern is a counterpart of the sizable
positive output gap that arises in the Tealbook forecast. The lower unemployment rate path also contributes to
higher projected payroll growth in the Tealbook forecast.
One other di erence in the labor market projections concerns the paths for labor force participation. In our
projection, the participation rate rises gradually to 63.1 percent in 2019. In the Tealbook this rate still declines to
62.5 percent at end-2019. This di erence refects our assumption of some positive cyclical e ects on participation.
For infation, the two forecasts di er notably. We see infation rising to 2 percent in 2018 and modestly above
that level in 2019 – 20 before returning to objective early in the next decade. In contrast, the Tealbook projects
core infation to reach 2 percent in 2019, despite an even larger undershooting of unemployment, and then running
persistently slightly above that level in the early 2020s. The considerable persistence of infation and the fat
Phillips curve within the Tealbook framework appear to require a prolonged period of above-potential growth in
order to induce infation to rise toward the longer-run infation goal. As mentioned previously, the overshoot of

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infation in our projection occurs to prevent infation expectations from falling below levels consistent with the
FOMC’s longer-run objective.
In terms of the uncertainty and risk assessment, both projections see uncertainty at near normal levels and
risks broadly balanced.
Finally, our monetary policy path is below the Tealbook path for 2018 – 20. In addition, our assumption for
the longer-run normal policy rate is 25bps above that of the Tealbook. Both policy paths have an overshooting of
the longer-run FFR in 2019 – 20, although the Tealbook’s is appreciably larger, which is a refection of the larger
projected positive output gap in the Tealbook forecast.

Respondent 13: My assessment of the likely macroeconomic e ects of the House/Senate tax bills is similar
to those of the sta , except that I have not taken on board their assessment of the medium-term e ects of the
fscal initiatives on labor supply; accordingly, I have assumed that the boost to potential output from the tax
changes is quite small. In addition to this di erence, my forecast continues to assume that, over the next few years,
the neutral rate will be appreciably lower than the sta estimates. Finally, I continue to assume that infation
expectations are anchored at 2 percent, unlike the sta ; thus, my forecast assumes that less undershooting of the
long-run unemployment rate will be needed to return infation to 2 percent.
Respondent 14: My assumptions about the e ects of fscal policy are similar to those in the latest sta forecast
update; those e ects are about twice as large as the ones in the Tealbook.

Respondent 15: As in the Tealbook forecast (revised to include updated tax policy assumptions), I expect
that the economy will grow at an above trend pace, labor market conditions will continue to strengthen, and
infation will gradually rise to our 2 percent goal. The infation and labor market dynamics in my outlook di er
from those in the Tealbook forecast: our infation paths are similar but I do not project as great a fall in the
unemployment rate. Thus, compared to the Tealbook forecast, I see infation somewhat better anchored at target
and see somewhat stronger infationary pressures. On balance, my funds rate path over the next two years is similar
to that in the Tealbook forecast. My fscal policy assumptions are similar to those in the Tealbook forecast, but I
might be a little more skeptical about supply-side responses to the tax package.
Respondent 16: My projection for real GDP growth is lower than the revised Tealbook projection throughout
the medium-term forecast horizon. However, I see infation converging to target by the end of next year, owing to
an assumption that longer-run infation expectations remain at mandate-consistent levels. Also, I am forecasting
much less of a decline in the unemployment rate than the Tealbook due to a lower projection for employment
growth.

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Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2017–20 and over the longer run
Number of participants

2017

December
Tealbook

December projections
September projections

18
16
14
12
10
8
6
4
2

September
Tealbook

1.0 1.1

1.2 1.3

1.4 1.5

1.6 1.7

1.8 1.9

2.0 2.1

2.2 2.3

2.4 2.5

2.6 2.7

2.8 2.9

Percent range
Number of participants

2018

1.0 1.1

September
Tealbook

1.2 1.3

1.4 1.5

1.6 1.7

1.8 1.9

2.0 2.1

2.2 2.3

December
Tealbook

2.4 2.5

2.6 2.7

18
16
14
12
10
8
6
4
2
2.8 2.9

Percent range
Number of participants

2019

1.0 1.1

September
Tealbook

1.2 1.3

1.4 1.5

1.6 1.7

1.8 1.9

December
Tealbook

2.0 2.1

2.2 2.3

18
16
14
12
10
8
6
4
2
2.4 2.5

2.6 2.7

2.8 2.9

Percent range
Number of participants

2020

December
Tealbook

18
16
14
12
10
8
6
4
2

September
Tealbook

1.0 1.1

1.2 1.3

1.4 1.5

1.6 1.7

1.8 1.9

2.0 2.1

2.2 2.3

2.4 2.5

2.6 2.7

2.8 2.9

Percent range
Number of participants

Longer run

18
16
14
12
10
8
6
4
2

December and September
Tealbook

1.0 1.1

1.2 1.3

1.4 1.5

1.6 1.7

1.8 1.9

2.0 2.1

2.2 2.3

2.4 2.5

2.6 2.7

2.8 2.9

Percent range

Note: Updated December Tealbook values are reported. Definitions of variables and other explanations are in the
notes to table 1.

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December 12–13, 2017

Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2017–20 and over the longer run
Number of participants

2017
December projections
September projections

3.2 3.3

3.4 3.5

3.6 3.7

3.8 3.9

December
Tealbook

September
Tealbook

4.0 4.1

4.2 4.3

18
16
14
12
10
8
6
4
2
4.4 4.5

4.6 4.7

4.8 4.9

5.0 5.1

Percent range
Number of participants

2018
December
Tealbook

3.2 3.3

3.4 3.5

3.6 3.7

18
16
14
12
10
8
6
4
2

September
Tealbook

3.8 3.9

4.0 4.1

4.2 4.3

4.4 4.5

4.6 4.7

4.8 4.9

5.0 5.1

Percent range
Number of participants

2019

18
16
14
12
10
8
6
4
2

December
Tealbook
September
Tealbook

3.2 3.3

3.4 3.5

3.6 3.7

3.8 3.9

4.0 4.1

4.2 4.3

4.4 4.5

4.6 4.7

4.8 4.9

5.0 5.1

Percent range
Number of participants

2020

September
Tealbook

December
Tealbook

3.2 3.3

3.4 3.5

3.6 3.7

18
16
14
12
10
8
6
4
2
3.8 3.9

4.0 4.1

4.2 4.3

4.4 4.5

4.6 4.7

4.8 4.9

5.0 5.1

Percent range
Number of participants

Longer run

December
Tealbook

18
16
14
12
10
8
6
4
2

September
Tealbook

3.2 3.3

3.4 3.5

3.6 3.7

3.8 3.9

4.0 4.1

4.2 4.3

4.4 4.5

4.6 4.7

4.8 4.9

5.0 5.1

Percent range

Note: Updated December Tealbook values are reported. Definitions of variables and other explanations are in the
notes to table 1.

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Figure 3.C. Distribution of participants’ projections for PCE inflation, 2017–20 and over the longer run
Number of participants

2017

September
Tealbook

December
Tealbook

1.5 1.6

1.7 1.8

December projections
September projections

1.9 2.0

2.1 2.2

18
16
14
12
10
8
6
4
2

2.3 2.4

Percent range
Number of participants

2018

1.5 1.6

December
Tealbook

September
Tealbook

1.7 1.8

1.9 2.0

18
16
14
12
10
8
6
4
2
2.1 2.2

2.3 2.4

Percent range
Number of participants

2019

December and September
Tealbook

1.5 1.6

1.7 1.8

1.9 2.0

18
16
14
12
10
8
6
4
2
2.1 2.2

2.3 2.4

Percent range
Number of participants

2020

December and September
Tealbook

1.5 1.6

1.7 1.8

1.9 2.0

18
16
14
12
10
8
6
4
2
2.1 2.2

2.3 2.4

Percent range
Number of participants

Longer run

1.5 1.6

December and September
Tealbook

1.7 1.8

1.9 2.0

18
16
14
12
10
8
6
4
2
2.1 2.2

2.3 2.4

Percent range

Note: Updated December Tealbook values are reported. Definitions of variables and other explanations are in the
notes to table 1.

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Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2017–20
Number of participants

2017

December and September
Tealbook

1.3 1.4

1.5 1.6

December projections
September projections

1.7 1.8

1.9 2.0

2.1 2.2

18
16
14
12
10
8
6
4
2

2.3 2.4

Percent range
Number of participants

2018

1.3 1.4

1.5 1.6

December
Tealbook

September
Tealbook

1.7 1.8

1.9 2.0

18
16
14
12
10
8
6
4
2
2.1 2.2

2.3 2.4

Percent range
Number of participants

2019

December and September
Tealbook

1.3 1.4

1.5 1.6

1.7 1.8

1.9 2.0

18
16
14
12
10
8
6
4
2
2.1 2.2

2.3 2.4

Percent range
Number of participants

2020

December and September
Tealbook

1.3 1.4

1.5 1.6

1.7 1.8

1.9 2.0

18
16
14
12
10
8
6
4
2
2.1 2.2

2.3 2.4

Percent range

Note: Updated December Tealbook values are reported. Definitions of variables and other explanations are in the
notes to table 1.

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December 12–13, 2017

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, 2017–20 and over the longer run
Number of participants

2017
December projections
September projections

September
December Tealbook
Tealbook

1.13 1.37

1.38 1.62

1.63 1.87

1.88 2.12

2.13 2.37

2.38 2.62

2.63 2.87

2.88 3.12

3.13 3.37

3.38 3.62

3.63 3.87

18
16
14
12
10
8
6
4
2

3.88 4.12

4.13 4.37

Percent range
Number of participants

2018

1.13 1.37

December
Tealbook
September
Tealbook

1.38 1.62

1.63 1.87

1.88 2.12

2.13 2.37

2.38 2.62

2.63 2.87

18
16
14
12
10
8
6
4
2
2.88 3.12

3.13 3.37

3.38 3.62

3.63 3.87

3.88 4.12

4.13 4.37

Percent range
Number of participants

2019

1.13 1.37

December and September
Tealbook

1.38 1.62

1.63 1.87

1.88 2.12

2.13 2.37

2.38 2.62

2.63 2.87

2.88 3.12

3.13 3.37

3.38 3.62

3.63 3.87

18
16
14
12
10
8
6
4
2
3.88 4.12

4.13 4.37

Percent range
Number of participants

2020

December
Tealbook
September
Tealbook

1.13 1.37

1.38 1.62

1.63 1.87

1.88 2.12

2.13 2.37

2.38 2.62

2.63 2.87

2.88 3.12

3.13 3.37

3.38 3.62

3.63 3.87

3.88 4.12

18
16
14
12
10
8
6
4
2

4.13 4.37

Percent range
Number of participants

Longer run
18
16
14
12
10
8
6
4
2

December and September
Tealbook

1.13 1.37

1.38 1.62

1.63 1.87

1.88 2.12

2.13 2.37

2.38 2.62

2.63 2.87

2.88 3.12

3.13 3.37

3.38 3.62

3.63 3.87

3.88 4.12

4.13 4.37

Percent range

Note: Updated December Tealbook values are reported. Definitions of variables and other explanations are in the
notes to table 1.

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