Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, January 28-29, 2009 : Summary of Economic Projections - Compilation and Summary of Individual Economic Projections

View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Table 1: Economic Projections of Federal Reserve Governors and Reserve

Bank Presidents 1

2009

2010

2011

-1.3 to -0.5
-0.2 to 1.1

2.5 to 3.3
2.3 to 3.2

3.8 to 5.0
2.8 to 3.6

Unemployment Rate
October projections

8.5 to 8.8
7.1 to 7.6

8.0 to 8.3
6.5 to 7.3

6.7 to 7.5
5.5 to 6.6

PCE Inflation
October projections

0.3 to 1.0
1.3 to 2.0

1.0 to 1.5
1.4 to 1.8

0.9 to 1.7
1.4 to 1.7

Core PCE Inflation
October projections

0.9 to 1.1
1.5 to 2.0

0.8 to 1.5
1.3 to 1.8

0.7 to 1.5
1.3 to 1.7

Real GDP Growth
October projections

-2.5 to 0.2
-1.0 to 1.8

1.5 to 4.5
1.5 to 4.5

2.3 to 5.5
2.0 to 5.0

Unemployment Rate
October projections

8.0 to 9.2
6.6 to 8.0

7.0 to 9.2
5.5 to 8.0

5.5 to 8.0
4.9 to 7.3

PCE Inflation
October projections

-0.5 to 1.5
1.0 to 2.2

0.7 to 1.8
1.1 to 1.9

0.2 to 2.1
0.8 to 1.8

Core PCE Inflation
October projections

0.6 to 1.5
1.3 to 2.1

0.4 to 1.7
1.1 to 1.9

0.0 to 1.8
0.8 to 1.8

Central Tendencies
Real GDP Growth
October projections

Ranges

1. Projections of real GDP growth, PCE inflation and core PCE inflation are fourth-quarter-to-fourthquarter growth rates, i.e. percentage changes from the fourth quarter of the prior year to the fourth quarter
of the indicated year. PCE inflation and core PCE inflation are the percentage rates of change in the price
index for personal consumption expenditures and the price index for personal consumption expenditures
excluding food and energy, respectively. Each participant's projections are based on his or her assessment of
appropriate monetary policy. The range for each variable in a given year includes all participants'
projections, from lowest to highest, for that variable in the given year; the central tendencies exclude the
three highest and three lowest projections for each variable in each year.

Authorized for Public Release – 1 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Table 1a

Economic Projections for the First Half of 2009*

(in percent)

Central Tendencies and Ranges
Central Tendency

Range

Change in Real GDP

-4.0 to -2.9

-5.0 to -1.3

PCE Inflation

-0.7 to 0.2

-1.7 to 1.2

Core PCE Inflation

1.0 to 1.2

0.5 to 1.4

PCE Inflation
-1.7
0.0
0.2
-0.2
0.6
-0.7
0.2
-1.0
1.0
-0.2
-0.2
-1.7
0.0
-0.7
1.2
0.2
n/a

Core PCE Inflation
1.0
1.2
1.0
1.2
0.8
0.7
1.4
1.0
1.0
1.2
1.1
1.2
1.2
1.0
1.3
0.5
n/a

Participants' Projections
Projection
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

Change in Real GDP
-2.9
-3.6
-3.0
-4.0
-2.2
-3.0
-3.3
-5.0
-2.0
-3.0
-4.5
-3.5
-4.0
-3.0
-1.3
-3.6
n/a

* Growth and inflation are reported at annualized rates.

Authorized for Public Release – 2 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Table 1b

Economic Projections for the Second Half of 2009*

(in percent)

Central Tendencies and Ranges
Central Tendency

Range

Change in Real GDP

0.8 to 2.1

0.1 to 2.4

PCE Inflation

1.0 to 1.8

0.7 to 3.0

Core PCE Inflation

0.8 to 1.2

0.2 to 1.7

PCE Inflation
0.7
2.0
1.4
1.6
1.4
0.9
2.2
1.0
1.0
1.4
1.2
3.0
1.6
1.3
1.8
1.4
n/a

Core PCE Inflation
0.2
0.8
1.0
1.0
1.2
1.1
1.4
1.0
1.0
0.8
0.7
0.8
1.2
1.0
1.7
1.3
n/a

Participants' Projections
Projection
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

Change in Real GDP
1.3
1.7
0.2
2.1
1.2
0.8
2.4
0.1
2.0
0.4
2.2
2.0
1.3
2.1
1.7
1.1
n/a

* Projections for the second half of 2009 implied by participants' January projections for the first half of 2009
and for 2009 as a whole. Growth and inflation are reported at annualized rates.

Authorized for Public Release – 3 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Table 2: January Economic Projections
(in percent)
Projection

Year Change in Real GDP Unemployment Rate

PCE Inflation

Core PCE Inflation

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009
2009

-0.8
-1.0
-1.4
-1.0
-0.5
-1.1
-0.5
-2.5
0.0
-1.3
-1.2
-0.8
-1.4
-0.5
0.2
-1.3

8.8
8.6
8.6
8.5
8.0
8.7
8.7
9.0
8.5
8.6
9.0
8.4
8.5
8.5
8.0
9.2

-0.5
1.0
0.8
0.7
1.0
0.1
1.2
0.0
1.0
0.6
0.5
0.6
0.8
0.3
1.5
0.8

0.6
1.0
1.0
1.1
1.0
0.9
1.4
1.0
1.0
1.0
0.9
1.0
1.2
1.0
1.5
0.9

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010

3.3
2.5
1.5
2.8
3.0
3.3
3.0
2.0
4.0
1.5
4.5
2.6
3.5
3.1
3.0
3.0

8.4
8.3
8.0
8.0
8.2
8.2
8.3
9.0
7.5
8.3
8.2
8.1
8.1
8.2
7.0
9.2

1.8
0.9
1.2
1.2
1.5
1.2
1.5
1.0
1.5
1.3
1.0
1.1
0.7
0.9
1.7
1.7

1.0
0.8
1.1
1.0
1.5
1.1
1.3
1.0
1.5
1.3
0.4
0.8
0.7
0.8
1.7
1.6

Authorized for Public Release – 4 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Table 2 (continued): January Economic Projections

Projection
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17

Year Change in Real GDP Unemployment Rate
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011

4.2
4.2
3.8
5.0
3.5
4.5
5.0
4.0
3.8
2.3
5.5
4.9
4.5
5.0
2.7
5.0

7.7
7.4
6.8
6.5
7.5
7.2
7.0
8.0
6.5
7.3
7.0
6.7
7.5
6.9
5.5
7.2

PCE Inflation

Core PCE Inflation

2.1
0.9
1.8
1.2
1.5
1.3
1.5
1.5
1.5
1.5
0.2
0.8
1.0
0.8
1.7
1.8

1.4
0.7
1.3
1.0
1.5
1.2
1.3
1.5
1.5
1.5
0.0
0.6
1.0
0.7
1.7
1.8

Authorized for Public Release – 5 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Figure 1. Central tendencies and ranges of economic projections, 2009–11
Percent

Change in real GDP

Central tendency of projections
Range of projections

4
3

Actual

2
1
+
0
_
1
2

2004

2005

2006

2007

2008

2009

2010

2011

Percent

Unemployment rate
9
8
7
6
5
2004

2005

2006

2007

2008

2009

2010

2011

Percent

PCE inflation
3
2
1
+
0
_

2004

2005

2006

2007

2008

2009

2010

2011

Percent

Core PCE inflation
3
2
1
+
0
_

2004

2005

2006

2007

2008

2009

2010

NOTE: Definitions of variables are in the notes to table 1. The data for the actual values of the variables are annual.

Authorized for Public Release – 6 of 36

2011

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Uncertainty and Risks - GDP Growth

2(a): Please indicate your judgment of the uncertainty attached to your projections relative to
levels of uncertainty over the past 20 years.
Number of participants

0
Lower
(C)

Broadly similar
(B)

Higher
(A)

2(b): Please indicate your judgment of the risk weighting around your projections.
Number of participants

0
Weighted to downside
(C)

Broadly balanced
(B)

Weighted to upside
(A)

Individual Responses
Respondent
2(a)
2(b)

A A A A A A A A A
C C B C C C B C C

10 11 12 13 14 15 16
A
C

A
C

Authorized for Public Release – 7 of 36

A
B

A
C

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Uncertainty and Risks - Unemployment Rate

2(a): Please indicate your judgment of the uncertainty attached to your projections relative to
levels of uncertainty over the past 20 years.
Number of participants

0
Lower
(C)

Broadly similar
(B)

Higher
(A)

2(b): Please indicate your judgment of the risk weighting around your projections.
Number of participants

0
Weighted to downside
(C)

Broadly balanced
(B)

Weighted to upside
(A)

Individual Responses
Respondent
2(a)
2(b)

A A A A A A A A A
A A A A A A B A A

10 11 12 13 14 15 16
A
A

A
A

Authorized for Public Release – 8 of 36

A
B

A
A

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Uncertainty and Risks - PCE Inflation

2(a): Please indicate your judgment of the uncertainty attached to your projections relative to
levels of uncertainty over the past 20 years.
Number of participants

0
Lower
(C)

Broadly similar
(B)

Higher
(A)

2(b): Please indicate your judgment of the risk weighting around your projections.
Number of participants

0
Weighted to downside
(C)

Broadly balanced
(B)

Weighted to upside
(A)

Individual Responses
Respondent
2(a)
2(b)

A A B A B A A A A
C B B C B C B B B

10 11 12 13 14 15 16
A
C

A
C

A
B

Authorized for Public Release – 9 of 36

A
B

A
C

A
B

A
C

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Uncertainty and Risks - Core PCE Inflation

2(a): Please indicate your judgment of the uncertainty attached to your projections relative to
levels of uncertainty over the past 20 years.
Number of participants

0
Lower
(C)

Broadly similar
(B)

Higher
(A)

2(b): Please indicate your judgment of the risk weighting around your projections.
Number of participants

0
Weighted to downside
(C)

Broadly balanced
(B)

Weighted to upside
(A)

Individual Responses
Respondent
2(a)
2(b)

A A B A B A A A A
C B B C B C B B B

10 11 12 13 14 15 16
A
C

A
C

A
B

Authorized for Public Release – 10 of 36

A
B

A
C

A
B

A
C

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Uncertainty and Risks

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 about growth and unemployment is driven primarily by uncertainty about the course of the
ﬁnancial crisis and the eﬀects of the crisis on real activity. In addition, there is much uncertainty about the
shape and eﬀectiveness of the government policy response (ﬁscal and ﬁnancial policies). Inﬂation uncertainty
reﬂects uncertainty about the evolution of resource slack and commodity prices (in light of greater uncertainty
about world growth).
Respondent 3:
N/A
Respondent 4:
The speed and extent of the collapse of conﬁdence in ﬁnancial institutions and economic prospects and the
resulting pull back in risk taking this fall, along with the governmental response, have few, if any precedents,
so uncertainty about how economic activity and inﬂation will play out is unusually high
Respondent 5:
Uncertainty regarding my projections for GDP growth and unemployment are above average over the next
year or so, due to the diﬃculty in forecasting the timing and depth of the recession. Beyond the end of
the recession, uncertainty is about average. Under appropriate monetary policy, inﬂation expectations and
inﬂation would be more ﬁrmly anchored than has been typical over the past twenty years, so uncertainty
would be lower. While I believe that lower inﬂation uncertainty can be achieved over the forecast horizon,
uncertainty about inﬂation is higher than typical now and it may take some time to make the transition to a
more appropriate anchoring of expectations. Thus on balance, uncertainty about inﬂation would be broadly
balanced.
Respondent 6:
N/A
Respondent 7:
The degree to which nonstandard policies by the Federal Reserve, Treasury, and the FDIC will ameliorate
credit conditions is highly uncertain. So is the degree to which private markets will make progress in working
through the price discovery process and the eﬀects of resulting asset revaluations on the lending capacity of
ﬁnancial intermediaries. The scope and inﬂuence of yet-to-be-enacted stimulative ﬁscal policy action adds
another degree of uncertainty to the forecast.
Respondent 8:
N/A
Respondent 9:
N/A
Respondent 10:
N/A

Authorized for Public Release – 11 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Respondent 11:
N/A
Respondent 12:
N/A
Respondent 13:
Uncertainty is unusually high because the depth and duration of the recession are far from clear, as is the
timing and magnitude of the recovery. Moreover, there appears to be the possibility, albeit relatively remote,
of sustained deﬂation.
Respondent 14:
The global ﬁnancial turmoil, the deepening banking crisis, and questions about the eﬀectiveness of the nascent
ﬁscal stimulus and ongoing unconventional monetary policy actions raise the level of uncertainty around our
projections for economic activity. The increased volatility in commodity prices and the heightened risks to
the outlook for growth raise the level of uncertainty about our inﬂation projections.
Respondent 15:
The economy continues to experience unusual ﬁnancial stresses. Further, monetary policy is constrained
by the zero bound on interest rates and the magnitude of the eﬀects of quantitative easing are uncertain.
Consequently, I view forecast uncertainty to be higher than usual.
Respondent 16:
Quantitative judgment based on standard deviation of FRBNY forecast distribution for GDP growth and
core PCE inﬂation relative to those reported in Reifschneider and Tulip.

Authorized for Public Release – 12 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Uncertainty and Risks

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:
N/A
Respondent 2:
N/A
Respondent 3:
N/A
Respondent 4:
The government policies (including Federal Reserve policies) to address ﬁnancial sector weakness and stim
ulate the economy here and abroad are more likely to turn out to be less eﬀective than more eﬀective than
I have assumed. The skew in the distribution around the output gap results in a skew in the distribution
around inﬂation. In addition, I have assumed that inﬂation expectations are better anchored than in the
staﬀ forecast, and the risks around that are to the downside.
Respondent 5:
The possibility that the recession lasts beyond the third quarter leads us to believe that the risks to GDP
growth and unemployment rate are tilted to the downside and upside respectively. Inﬂation risks are bal
anced.
Respondent 6:
In the near-term (2009 and 2010), I believe the risks to overall and core inﬂation are to the downside.
However, in the longer-term (2011 and beyond), I believe the risks are to the upside if we delay removing
accommodation and shrinking our balance sheet.
Respondent 7:
The risks with regard to the eﬀects of nonstandard government policies on the functioning of credit markets
appear to be balanced. There is a downside risk that the realization of further losses by ﬁnancial institu
tions could result in additional balance sheet pressures on lending capacity. The up and down-side risks to
growth emanating from the uncertainty over ﬁscal policy stimulus are balanced. In the near term, price risks
are tilted to towards lower-than-expected inﬂation due to the substantial slack in the economy and falling
commodity prices. Over the longer run, there is a risk that actual or perceived diﬃculties in unwinding the
large expansion to the Federal Reserve’s balance sheet will boost inﬂationary expectations.
Respondent 8:
N/A
Respondent 9:
In the near term, I see the risks to growth weighted to the downside, but going forward as the economy
recovers from the current recession and experiences the ﬁscal stimulus package I believe that the risks will
become weighted to the upside. In the near I believe that the risks to inﬂation are broadly balanced, while
over the longer term the risks may move to the upside depending on the success of an exit strategy from the
current quantitative easing.
Respondent 10:
There is a signiﬁcant risk that the near-term disinﬂationary consequences of economic weakness are stronger

Authorized for Public Release – 13 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

than shown in my forecast.
Respondent 11:
N/A
Respondent 12:
N/A
Respondent 13:
N/A
Respondent 14:
The risks to the outlook for growth are weighted to the downside and those for the outlook for unemployment
are correspondingly weighted to the upside. The interaction of higher unemployment and rising delinquencies
raises the potential for even greater losses by banks and other institutions and an intensiﬁcation of the ongo
ing adverse feedback loop. The continuing deterioration of the ﬁnancial sector despite massive interventions
also raises concerns about how quickly the economy might recover. Given the sizable downside risks to the
forecast for growth, the risks to the inﬂation forecast are likewise weighted to the downside.
Respondent 15:
Near-term risks to growth are to the downside given weak ﬁnancial market conditions and the monetary
policy zero-bound constraint. Near-term inﬂation risks are to the downside. But longer-term inﬂation risks
are to the upside because of the uncertainty about our ability to reduce the size of our balance sheet at the
appropriate time.
Respondent 16:
Quantitative judgment based on the diﬀerence between projection and expected value from FRBNY forecast
distribution.

Authorized for Public Release – 14 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Appropriate Monetary Policy

3. Does your view of the appropriate path of interest rates diﬀer materially
from the interest rate assumed by the staﬀ in the Greenbook?

YES
8

NO
8

Respondent 1: Yes

My projection has the federal funds rate gradually rising beginning in 2011.

Respondent 2: No
N/A
Respondent 3: No
N/A
Respondent 4: No

Although my expected path for the federal funds rate is about the same as that of the staﬀ, I did assume

additional credit market actions by the Federal Reserve that help to reduce tightness in ﬁnancial market

conditions.

Respondent 5: Yes

I believe sometime between the end of this year and the end of next year we will want to reduce excess

reserves substantially and lift the federal funds rate oﬀ the ﬂoor.

Respondent 6: Yes

I assume the funds rate remains in its current range of zero to 1/4 percent through the end of 2009. However,

unlike Greenbook, I assume the FOMC can begin to raise the funds rate at a modest pace beginning in 2010

(rather than waiting until 2013).

Respondent 7: Yes

We assume that increases in the funds rate begin sometime in 2010.

Respondent 8: No
N/A
Respondent 9: Yes
While the exact timing and pattern of recovery from the current recession is highly uncertain, and becoming
stuck in a deﬂationary trap is a possibility, I do not see this as the modal outcome. Hence I believe that,
under appropriate monetary policy, we likely will have to move away from the current target range as part of
the process of withdrawing from quantitative easing much sooner than assumed in the Greenbook forecast.
Respondent 10: No
N/A
Respondent 11: No
N/A
Respondent 12: No
N/A

Authorized for Public Release – 15 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Respondent 13: Yes
I expect the Federal funds rate to begin to move up modestly sometime in the second half of 2010 or early
in 2011.
Respondent 14: No
N/A
Respondent 15: Yes
My forecast assumes a less accommodative federal funds rate path than that in the Greenbook baseline. I
view appropriate policy as keeping the funds rate close to zero though the ﬁrst half of 2009. The funds rate
then begins to rise gradually as real GDP growth accelerates and inﬂation begins to rise. The funds rate
reaches 3.5 percent in 2011Q4.
Respondent 16: Yes
Through 2009-10 identical. We assume the normalization of interest rates starts in 2011. Because of dif
ferences in our inﬂation forecast, real policy rates remains similar in 2011. We also assume an expansion
of the TALF, the Fed’s balance sheet to ﬂuctuates around a high level determined by the facilities/OMOs,
and oﬃcial communication on a contingent path for the policy rate and the Committee’s mandate for price
stability.

Authorized for Public Release – 16 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Forecast Narratives

4(a). Please describe the key factors shaping your central economic outlook

and the uncertainty around that outlook.

Respondent 1:
Fallout from the credit crisis severely impacts real economic activity, depressing business investment and
further dampening consumer spending. These adverse eﬀects only begin to dissipate in the second half of
2009. Furthermore, weakness has spread into world markets, causing a global recession. The severity of the
U.S. recession is dampened somewhat by the forthcoming ﬁscal stimulus, which also helps to accentuate the
recovery period.
There is a substantial amount of uncertainty surrounding this projection. Forecasting in periods such as
these is notoriously diﬃcult. The primary risks remain to the downside on near-term growth and inﬂation.
Respondent 2:
As in the last set of projections, the intensiﬁcation of the ﬁnancial crisis and the remarkably sharp slowdown
in global growth point to substantial weakness in the near term. My modal forecast has some improvement
in ﬁnancial conditions in 09:H1, reﬂecting ﬁscal policy, bank stabilization policies, and Fed support of credit
markets, as well as some improvement in conﬁdence and workdown of inventories. However, both ﬁscal and
banking policies may take time to work, monetary policy is constrained by the ZLB, and we have seen in
past episodes that ”ﬁnancial headwinds” can persist. Thus a quite slow recovery (particularly in the labor
market) or stagnation for a period are both signiﬁcant possibilities.
Respondent 3:
Degree of ﬁnancial stress; eﬃcacy of ﬁscal stimulus.
Respondent 4:
The adverse feedback between ﬁnancial markets and economic activity continues through the ﬁrst half of
2009, though diminishing in force over the second quarter. By the second half of the year the eﬀects of
governmental actions to repair ﬁnancial markets and bolster spending boost demand. In addition, invento
ries of goods and of houses are drawn down to more sustainable levels, removing that source of cut backs
in production. The slowing of house price declines helps to relieve anxieties about ﬁnancial institutions,
contributing to a gradual improvement in ﬁnancial market functioning and easing of ﬁnancial conditions.
As this process continues, and as the multiplier/accelerator eﬀects of ﬁscal stimulus play out, the growth of
economic activity strengthens over 2010 and 2011.
Respondent 5:
I believe the recession is likely to end around mid-year, and that the economy will then begin to grow slowly.
Business investment is likely to quite weak this year, but consumer spending is likely to ﬂatten out and then
pick up. I am a bit more pessimistic about the stimulative eﬀects of ﬁscal policy than the Greenbook.
Respondent 6:
Recent data on consumer and business spending, housing, labor markets, foreign economic activity, and
ﬁnancial markets point to a deeper broad-based recession, leading me to revise down my forecast for growth
in 2009. In the near-term, I expect the negative eﬀects of job losses, declining incomes and wealth, lower
consumer and business conﬁdence, and tighter credit to dominate the positive eﬀects of lower energy prices.
However, I expect monetary policy and ﬁscal policy to eventually provide a boost to growth and sentiment.
As a result, I now expect real GDP to decline during the ﬁrst three quarters of the year before picking
up to a 2 percent rate in the fourth quarter. I also expect consumer spending will decline at about a 1
percent rate in the ﬁrst half of the year. With a stimulative ﬁscal policy in 2009 and 2010, and a continued
accommodative monetary policy, I expect the economy will grow above trend in 2010 and 2011, thereby

Authorized for Public Release – 17 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

shrinking the currently large negative output gap.
The signiﬁcant decline in energy and commodity prices, along with weakness in output and spending, has
put signiﬁcant downward pressure on overall and core inﬂation in the last couple months. Both overall and
core inﬂation are likely to remain below 1 percent in 2009 and only about 1 1 percent in 2010.
4
In light of continued weakness in the economy, severe problems in housing and ﬁnancial markets, and
heightened caution of the part of consumers and businesses, the risks to GDP growth are weighted to the
downside. In the near-term (2009 and 2010), the risks to overall and core inﬂation are to the downside.
However, in the longer-term (2011 and beyond), I fear the risks are to the upside if we delay removing
accommodation and shrinking our balance sheet.
Respondent 7:
We assume that monetary accommodation (including that provided by special credit facilities), private ﬁ
nancial sector adjustments, and ﬁscal policy stimulus will result in a resumption of positive growth in the
second half of 2009. Although we expect them to improve, we still believe credit conditions will be a net
drag on activity this year. Further improvement in ﬁnancial markets, continued policy accommodation, and
cyclical dynamics are expected to boost growth above potential in 2010 and 2011.
The recovery is not expected to be robust enough to close resource gaps until beyond the end of pro
jection period. One reason is that ﬁrms have shed labor quickly, and, going forward, we think they will be
reluctant to increase employment quickly.
This slack represents continued downward pressure on inﬂation. However, we do not anticipate that in
ﬂation expectations will decline to a degree that would support a deﬂationary outcome. This judgment
assumes that agents’ deﬂationary concerns due to output gaps are roughly balanced by concerns over the
possible inﬂationary consequences of our expanded balance sheet. In this environment, we assume that
policy unwinds the extra liquidity injected in the economy with appropriate consideration to the evolution
of inﬂation expectations.
Respondent 8:
The deterioration in the economy will continue over the near term, driven by adverse feedback from ris
ing unemployment, the world-wide seizing up of credit markets, declines in foreign direct investment, and
growing global protectionist sentiment. Federal Reserve initiatives will have only limited success in counter
ing these headwinds. Consequently, the recession will be unusually deep, and the recovery unusually sluggish.
With the economy and economic policy entering uncharted territory, risk aversion will remain extreme.
Trust–in regulators, ﬁnancial institutions, investment advisors, and ﬁscal and monetary policymakers–has
been badly damaged.
Late this year and early next year, though, residential investment bottoms out–eliminating a major drag
on the economy–and ﬁscal stimulus takes eﬀect. As uncertainties about ﬁnancial rescue and reorganization
policies are resolved, borrower, investor, and ﬁnancial-manager decision making gradually thaw.
Respondent 9:
I expect continued contraction in early 2009 with output bottoming out in the middle of the year and then
recovering in the second half. In 2010 and 2011 I anticipate growth will occur at greater than steady-state
rates, reﬂecting normal cyclical patterns reinforced by a modest impact of a yet-to-be adopted ﬁscal stimulus
package. I expect relatively low, but positive inﬂation in 2009 under appropriate monetary policy. Subse
quently I believe that inﬂation, under appropriate monetary policy, should approach my preferred long-run
rate of 1.5%. I do not believe that future energy shocks can be forecasted, so with available information I
expect that core and headline inﬂation will be roughly equal over the projection period.

Authorized for Public Release – 18 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Respondent 10:
All indicators continue to reveal an economy in deep and broad-based recession. Further declines in home
prices are expected to weigh heavily on ﬁnancial and household balance sheets. Consumer and business
spending are like to fall further in the near-term, mitigated somewhat by ﬁscal stimulus starting in the lat
ter half of 2009. However, credit loses and solvency concerns remain substantial well into 2010, and private
savings rates are projected to rise and remain elevated over the forecast horizon, slowing the pace of recovery.
Slower growth is expected to exert downward pressure on prices, though these inﬂuences are likely to be
partly mitigated by a temporary reduction in potential GDP growth and accommodative policy actions.
Respondent 11:
Fundamental drivers of the economy have deteriorated substantially. Labor market conditions are bleak,
and the labor market is likely to worsen further before starting to improve gradually. Support to consumer
spending is hampered not only by the labor market, but also by the very steep declines in stock market and
housing wealth. The ﬁscal stimulus will provide some wherewithal to consumers, but we expect the eﬀect of
the stimulus to become apparent mostly in 2010, as the drag from poor consumption fundamentals begins
to subside. Overall, we expect activity to contract in the ﬁrst half of this year, with the unemployment rate
rising to 9 percent by mid-year. The ﬁscal stimulus starts to impact the economy in the second half of 2009,
and as a result activity grows near potential. We expect GDP to grow noticeably above potential in 2010
and 2011, as credit conditions start to improve and the eﬀects of the ongoing ﬁscal and monetary stimuli are
fully realized. This spurt in economic activity notwithstanding, the unemployment rate is still at 7 percent
by the end of 2011. As a result of the signiﬁcant labor market slack over the forecast horizon, the rate of
core inﬂation hovers around zero percent in 2011.
The timing of the ﬁscal stimulus remains uncertain. Delays in the enactment of the stimulus package
could make conditions even worse in the near term. Given the pronounced deterioration we are expecting in
the near-term, conditions at many ﬁnancial institutions will continue to worsen. This raises the likelihood
of further restrictions on credit supply and of increased ﬁnancial instability. For these reasons, we view the
risks to real activity as tilted to the downside. As concerns inﬂation, the risks are to the downside, too.
The downside risks are not just due to real-side uncertainty, but are also the result of our limited experience
with near-zero inﬂation. Given the unemployment rate forecast, our models would predict outright deﬂation
starting in 2010. We tempered this deﬂationary outlook by taking into account the fact that downward
nominal rigidities could attenuate the inﬂation-unemployment trade-oﬀ. Still, the risks of deﬂation are sig
niﬁcant.
Respondent 12:
I chose the Greenbook forecast assuming strong ﬁscal stimulus and gradual waning of ﬁnancial stress. The
other scenarios I considered as highly likely were for more ﬁnancial stress or more cautious spending. I ﬁnally
discarded the two weaker scenarios on the assumption that should either occur it would be oﬀset by stronger
government reaction such as larger scale asset purchases or additional ﬁscal stimulus aimed especially at
job creation. I am concerned that if stock market values do not begin to recover, savings rates will remain
elevated.
Respondent 13:
I expect the recession to persist through the middle of 2009, followed by a modest recovery for three or
four quarters. The expansion will be constrained by ongoing problems in ﬁnancial markets and institutions
and in housing. As these problems diminish, economic growth should gain momentum. Underpinning the
expansion is accommodative monetary policy and ﬁscal policy stimulus.
Respondent 14:
Financial conditions remain extremely tight, housing activity and labor markets continue to deteriorate,
consumer and business spending are still falling, and the outlook for global growth has worsened. These

Authorized for Public Release – 19 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

factors contribute to the projected contraction in economic activity through much of 2009. Recapitalizing
the banking system and supporting ﬁnancial markets are crucial continuing actions. Also, the ﬁscal stimulus
will be a key driver of the gradual recovery in 2010 and 2011. Plummeting commodity prices and slack in
labor and goods markets should continue to keep inﬂation low.
Respondent 15:
The recent data on the economy have been weaker than what I anticipated in my October forecast. I expect
continued weakness in the housing sector, tight credit markets, lower household wealth, and poor growth
prospects in the rest of the world to hold down economic growth to a signiﬁcantly below-trend pace through
the ﬁrst half of 2009. However, as these factors begin to unwind, the economy rebounds to an above-trend
pace of 3 percent in 2010 before edging back down to trend at 2.7 percent in 2011. Uncertainty around this
forecast is higher than usual given the zero bound constraint on monetary policy. Near-term, the principal
risk is that the economy turns out weaker than expected. Longer term, the principal risk is that the economy
rebounds more quickly and at a stronger-than-expected pace. The FOMC would then need to reduce the
size of its balance sheet in a timely manner to avoid an unwelcome rise in inﬂation.
Respondent 16:
In our central projection, the US economy remains in recession through mid 2009, making this the longest
recession of the post WWII period. At the trough, the level of real GDP is about 2 1/4 % below the peak,
somewhat less than the most severe recessions of that period. By the second half of 2009 recovery begins
to take hold, aided by the preemptive path of monetary policy, various initiatives to foster ﬁnancial market
stability, and aggressive ﬁscal stimulus measures. Growth returns to just above its potential rate by 2010
and accelerates in 2011 to about 2 1 % above its potential rate, implying only a narrowing rather than a
2
complete closing of the output gap over this period. At the trough, the unemployment rate is expected to
3
be around 8 4 %, a full four percentage points above the level at the peak. This is large relative to the
decline in real GDP due to continued moderate growth of productivity and a rather muted decline of the
labor participation rate. Moreover, the unemployment rate is expected to continue rising over the ﬁrst year
of recovery, likely to around 9 1/4%, as the participation rate and average weekly hours move upward again.
Thereafter, the unemployment rate moves down only gradually. We maintain substantial downside risk to
our central scenario with an uncomfortably high probability on the steepest contraction in activity since the
1930s.
Within this central projection, consumer spending remains relatively sluggish through 2009 as households
respond to the decline in their net worth by boosting saving out of current cash ﬂow. The correction in
housing production is expected to be largely completed by mid-2009. At that point the large drag that res
idential investment has exerted on growth for the past three years will be over. Thereafter, housing is likely
to be a modest plus for growth, but the surge of residential investment experienced in the early stages of
past recoveries is not anticipated due to the continued high levels of homes coming onto the market through
the foreclosure process. Indeed, the correction in house prices is expected to continue through the end of
2010 with a cumulative 20% peak- to-trough decline in the FHFA purchase-only home price index. Business
investment in new structures and new equipment and software is expected to decline sharply in 2009 as
capacity utilization rates decline and vacancy rates rise. In addition, during the ﬁrst half of 2009 businesses
aggressively pare inventories to get them better aligned with sales. With the sharp downgrading of foreign
growth prospects, exports are expected to decline through mid 2009 with signiﬁcant growth not returning
until 2010. Nonetheless, in the near-term net exports remains a plus for growth from an accounting sense as
imports also decline due to the weakness of domestic demand. During the second half of 2009 the net export
contribution gradually declines and then turns negative in 2010 as the gradual recovery of domestic demand
induces an increase in the rate of growth of imports. Underlying this projected path of private ﬁnal demand
is the expectation that ﬁnancial market functioning returns to more normal conditions and that consumer
and business conﬁdence is gradually restored.
In this central scenario, total inﬂation is at ﬁrst negative as the eﬀects of the recent sharp declines in

Authorized for Public Release – 20 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

energy and other commodity prices show through into prices paid by consumers. Core inﬂation is very low
in the ﬁrst half of 2009 reﬂecting the quite abrupt decline in ﬁnal demand. In particular, prices of non-food,
non-energy goods decline relatively steeply as businesses aggressively cut prices to reduce excess inventories.
Thereafter, both total and core inﬂation gradually increase back into the mandate consistent range as ﬁnal
demand ﬁrms within the context of anchored inﬂation expectations.
The risks to our central projection for real activity are substantial and are skewed to the downside. In
the near-term, the key risks are that the credit channels remain impaired, business and consumer conﬁdence
erodes and weakness in external demand persists longer than assumed. This in turn leads to lower than
expected asset prices, less recovery in the supply of credit and, therefore, an even weaker path for ﬁnal
demand. A related risk is that, even if ﬁnancial markets and asset prices behave as assumed, the decline
of household net worth embedded in this central projection induces a steeper-than-expected increase of the
personal saving rate, keeping consumer spending weaker for longer. Finally, an important risk over the
medium term is the uncertainty surrounding our assumption of the economys potential growth rate.
The balance of risks around the central scenario for inﬂation is also skewed to the downside, but somewhat
less so than for growth. Clearly, the signiﬁcant downside risk to the growth projection implies downside risk
to the inﬂation projection. Further, if some of the more adverse risks to the global economy are realized,
we assess a substantial chance of deﬂation. In contrast, in the current environment of aggressive global
monetary and ﬁscal policy response to the ongoing ﬁnancial crisis, there is some risk of higher inﬂation if
the economy proves more resilient than in our central scenario. The net eﬀect of these competing risks is
somewhat to the downside.
The heightened uncertainty associated with a banking and ﬁnancial crisis, and the uncertainty associated
with the timing, magnitude, and eﬀectiveness of policy responses have resulted in highly elevated uncertainty
around our central projection compared to typical levels.

Authorized for Public Release – 21 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Forecast Narratives (continued)

4(b). Please describe the key judgements and assumptions aﬀecting your

economic projections in the ﬁnal projection year.

Respondent 1:
Due to the severity of the recession, the economy will not have returned to its longer-term trend growth rate
by the ﬁnal projection year (2011). This period is characterized by higher than trend growth and a declining
unemployment rate. Also, the inﬂation rate remains below my price stability goal in the ﬁnal year of the
projection.
Respondent 2:
Given extent of near-term weakness, both unemployment and inﬂation remain far from steady-state values.
Growth is above potential rate, reﬂecting rebound from situation with large output gap — though I expect
a somewhat slower rebound than does the Greenbook.
Respondent 3:
Expect slower, but still some, resumption toward trend.
Respondent 4:
I assumed that NAIRU will be 5 percent, the growth of potential will be 2-1/2 percent, and that the FOMC
would seek to anchor inﬂation at 2 percent on the PCE chain price index overtime.
Respondent 5:
The economy will still be recovering from the recession in 2011. Unemployment will be above average, even
though real GDP growth will be moderately above trend. With appropriate monetary policy, which includes
announcing a numerical objective for inﬂation next month, I believe we can bring inﬂation very close to 1.5
percent, in the absence of shocks.
Respondent 6:
I assume that ﬁnancial turmoil has subsided and extraordinary lending programs are no longer needed. Even
though some policy accommodation has been removed, monetary policy and ﬁscal policy will likely remain
stimulative through at least 2010. As a result, I expect real GDP growth will be above potential in 2011.
However, continued slack will act as a moderating factor on inﬂation, causing core PCE inﬂation to be below
desired levels in 2011.
Respondent 7:
As noted above, we do not think that growth and sentiment towards hiring in 2010 and 2011 will be suﬃcient
to close resource gaps. We also assume that inﬂation expectations in be 1-1/2 to 2 percent range.
Respondent 8:
By 2011, the U.S. economy will beneﬁt from stronger growth overseas, improvement in households ﬁnances,
and the lagged eﬀects of stimulative policy. The ﬁnancial system will have largely completed its consolidation
and recapitalization, and risk aversion will abate. The U.S. expansion must be driven by export growth to
an unusual degree, if global imbalances are not to re-emerge.
Respondent 9:
Growth still above its steady-state value an inﬂation at target. Unemployment still adjusting back to its
steady-state value.
Respondent 10:
Year-over-year GDP growth returns to its trend rate of 2.5 percent late in 2011. The combination of lower
potential growth and accommodative policy allows inﬂation to gradually move back toward the longer-term

Authorized for Public Release – 22 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

target of 2.0 percent.
Respondent 11:
Potential GDP is 2.5 percent, the NAIRU is 4.75 percent. The target for core PCE inﬂation is 2 percent.
The Federal funds rate is held ﬂat at 0.25 percent. The ﬁscal stimulus package amounts to roughly 800
billion over the forecast horizon.
Respondent 12:
N/A
Respondent 13:
See 4 (a)
Respondent 14:
In 2011, the forecasted PCEPI inﬂation rate is 0.8 percent, below my long-run inﬂation objective of 2.0
percent. The unemployment rate ends the year at 6.9 percent, still above my estimate of the natural rate
of 4.8 percent. The stance of monetary policy remains accommodative–with a funds rate of close to zero at
the end of 2011–in order to foster a reduction in the unemployment rate. Economic growth in 2011 is well
above potential.
Respondent 15:
By 2011 ﬁnancial market stresses are behind us, business and consumer sentiment has rebounded, and the
economy is growing at its trend pace of 2.7 percent. The unemployment rate is somewhat above my estimate
of the natural rate, which is 5 percent, and inﬂation is at my long-term goal of 1.7 percent. The federal
funds rate reaches 3.5 percent by year-end.
Respondent 16:
We assume that long-term inﬂation expectations to be anchored around 2.5% on a CPI basis and the FOMC’s
inﬂation objective to be around 2.0% for the PCE deﬂator and around 2.5% for the CPI. Potential growth
is 2.7% (we expect some further delay in the retirement of baby boomers relative to earlier generations),
and that the output gap opens in 2008-9 and narrows in 2010-11. Our extended forecast also includes some
implicit judgments about the likely ranges for the NAIRU and the neutral policy rate. Those judgments put
the neutral policy rate in the region of 3.75% to 4.75% absent the current disruptions in ﬁnancial markets
and the NAIRU between 4.5% to 5%.

Authorized for Public Release – 23 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Forecast Narratives (continued)

4(c). Please describe any important diﬀerences between your current economic

forecast and the Greenbook
Respondent 1:
My outlook for output is broadly similar to the Greenbook in the near-term. However, my path for the
recovery of economic growth is relatively muted in the out-years, when compared with the Greenbook. Also,
my forecast has anchored inﬂation expectations which helps to alleviate the downward drift in inﬂation seen
in the Greenbook.
Respondent 2:
Slightly more pessimistic, given the powerful downward momentum of the global economy, delayed ﬁscal
impact, and the likely drag from ﬁnancial conditions persisting through 2009.
Respondent 3:
N/A
Respondent 4:
Small diﬀerences: I see a slightly steeper decline in H1 09 owing to a further erosion of perceived safety and
soundness of ﬁnancial institutions and resulting tightening of credit, but a little faster rebound as additional
Federal Reserve eﬀorts to address ﬁnancial conditions take hold and conﬁdence begins to return. I assume
better anchored inﬂation expectations owing in part to FOMC communication.
Respondent 5:
I believe that under appropriate monetary policy inﬂation expectations would move steadily toward our
announced objective, which I assume is 1.5 percent, and so would diverge in the near term from the trailing
four-quarter average of core inﬂation. Thus I am forecasting higher inﬂation than in the Greenbook. Because
I expect businesses to remain cautious about new investments in the out years, I believe growth will be below
that of the Greenbook then.
Respondent 6:
Over the forecast horizon (2009 - 2011), I expect real GDP growth to average 2 1/4 percent, the same as
Greenbook. In addition, the general contour of my forecast for real GDP is similar to Greenbook’s forecast:
real GDP falls in 2009 and grows faster than trend in 2010 and 2011. However, unlike Greenbook, I expect
real GDP to decline through the third quarter of this year before beginning to increase in the fourth quarter.
I then expect a larger increase in 2010 and a somewhat slower increase in 2011. With regard to the unem
ployment rate, I expect it to reach 8.7 percent by the end of 2009 before declining at a somewhat slower
pace than Greenbook.
Like Greenbook, I expect overall and core PCE inﬂation to remain below 1.5 percent through the forecast
horizon. However, unlike Greenbook, I expect an upward trajectory to inﬂation while Greenbook expects
a downward trajectory. More speciﬁcally, I expect core PCE inﬂation to rise slowly to 1.2 percent in 2011,
compared to Greenbook’s forecast of a decline to 0.6 percent.
Respondent 7:
We think inﬂation expectations will run somewhat higher than in the Greenbook baseline.
Respondent 8:
The Greenbook baseline forecast underestimates both the intensity and the duration of ﬁnancial headwinds.
Respondent 9:

Authorized for Public Release – 24 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

I project somewhat less weakness in economic growth in the ﬁrst half of 2009 and a quicker recovery of
growth in 2010. My projection for inﬂation in 2009 does not diﬀer materially from that of the Greenbook,
though I see inﬂation most likely rising slightly in future years.
Respondent 10:
The recovery is more protracted than in the Greenbook. Monetary policy is conditioned on achieving PCE
inﬂation near 2 percent over the longer-term.
Respondent 11:
We see the unemployment rate peaking higher than in the Greenbook. While the downturn is somewhat more
severe, the economy rebounds somewhat more quickly than in the Greenbook. However, since our estimate
of potential is somewhat higher than the Greenbook’s, by the end of the forecast horizon our projected level
for the unemployment rate is not too diﬀerent. We expect core inﬂation to be lower than in the Greenbook,
as a result of a more meaningful trade-oﬀ between inﬂation and unemployment.
Respondent 12:
N/A
Respondent 13:
Relative to the Greenbook, I have a deeper contraction this year and a more rapid snap-back in 2010. I also
have a higher unemployment rate at the end of the forecast period.
Respondent 14:
The broad contours of my forecast are similar to Greenbook, although I assume a bit faster recovery in
response to additional unconventional monetary policy actions and a slightly stronger response to the ﬁscal
stimulus package.
Respondent 15:
I do not expect the economy to be as weak as the Greenbook in 2009 and 2010. As my inﬂation forecast is
less inﬂuenced by the degree of resource utilization in the economy, I expect inﬂation running at a higher
pace in 2010 and 2011 than in the Greenbook. Given the strength of the economy in my forecast relative to
the Greenbook, the monetary policy path is less accommodative beginning in 2009H2.
Respondent 16:
We project slightly higher trend growth of hours worked mainly because we assume that the secular decline
in the labor force participation rate will occur later and more slowly than in the GB. In terms of diﬀerence for
the outlook in 2009-10 this implies a higher peak to the unemployment rate than the GB as the labor force
participation rate does not decline as sharply as in the GB. We assume lower inﬂation persistence than does
the GB. Thus, for our medium-term inﬂation outlook we project inﬂation within the ”mandate-consistent”
range in 2010-11 under the assumption of well-anchored inﬂation expectations

Authorized for Public Release – 25 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Forecast Narratives (continued)

4(d). Please describe the key factors causing your forecast to change since the

previous quarter’s projections.
Respondent 1:
Since October, we have seen a dramatic worsening in the ﬁnancial sector and credit markets. Incoming
data has been exceptionally weak, especially the rapid deterioration in nonfarm payrolls and the consumer
spending. This has led me to dramatically revise down my forecast since the last submitted. Notably, I
am assuming a marked contraction in BFI. Given the international nature of the credit crisis, along with
incoming data and anecdotal reports, I have revised down my projection for foreign sector growth as well.
Near-term headline inﬂation dips very low as a result of the overall weakness in the economy and the re
trenchment in energy prices. While a considerable amount of slack builds during the forecast period, its
eﬀects on core inﬂation are tempered by a reappearance of global competition for resources and stable in
ﬂation expectations. That said, core inﬂation remains uncomfortably low throughout the balance of my
forecast.
Respondent 2:
Continued ﬁnancial stress (TARP injections did not eliminate serious concerns about banks), much weaker
than expected data outside the United States, data conﬁrming broad-based deterioration in the US (labor
markets, production).
Respondent 3:
Signiﬁcant further breakdown in business and consumer conﬁdence and signiﬁcant further weakening of ﬁ
nancial institutions.
Respondent 4:
The weakness in the ﬁnancial sector and the pull back in spending have proven deeper and more persistent
than I had anticipated.
Respondent 5:
Data on real activity has been much weaker than I expected since the last projections, especially for employ
ment, consumer spending and housing. Commodity prices have fallen more than I expected, and so inﬂation
has been lower than I expected as well.
Respondent 6:
Incoming data has been weaker than expected, the impact of ﬁnancial turmoil has been larger than expected,
and foreign growth has been weaker than expected. In addition, we are continuing to see heightened prob
lems with credit availability and greater caution on the part of consumers and businesses. Inﬂation data has
also been much weaker than expected. As a result, I have revised down my forecast for growth and inﬂation.
Respondent 7:
Economic activity has been much weaker than we had anticipated and full scale recessionary dynamics are
now in train. Household net worth has declined signiﬁcantly. Growth abroad is weaker than we had expected
as well. While we have experienced some improvements in short-term credit markets, the balance sheet con
ditions of many major ﬁnancial intermediaries have deteriorated more than we had expected. Fiscal policy
is set to become more expansionary than we had assumed.
Respondent 8:
The downturn has developed new momentum as concerns about the solvency of ﬁnancial institutions have
intensiﬁed, and as weakness has spread across sectors and around the world. Sharp declines in wealth and
a related increase in risk aversion have restrained consumer spending. Policy uncertainty has frozen deci-

Authorized for Public Release – 26 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

sion making. There is some evidence of a ”run” on banks–a run led not by depositors but by borrowers:
Businesses are rushing to draw on lines of credit even if they have no immediate need for cash, partly in
anticipation of future bargains and partly out of fear that funds will be unavailable later.
Respondent 9:
Substantially weaker data plus continuing ﬁnancial market trumoil in recent months.
Respondent 10:
Recent indicators imply considerably greater near-term growth weakness than projected in October. The
speed and breadth of the disinﬂation process has been greater than earlier assumed.
Respondent 11:
The current forecast for real activity and inﬂation reﬂects the fact that economic conditions on the real side
have deteriorated much more than expected. Recent inﬂation data, too, have surprised on the downside.
Respondent 12:
N/A
Respondent 13:
Incoming evidence has suggested that the recession will be more severe than earlier anticipated and the
moderation in inﬂation will be more pronounced. I have raised my forecast for growth in 2011 on the basis
of a re-reading of historical experience.
Respondent 14:
Since October, economic data, both for the U.S. and foreign economies, have been much worse than expected
and the global ﬁnancial and banking crisis has intensiﬁed. This has caused me to lower my forecast for eco
nomic activity over the next few quarters. The forthcoming ﬁscal stimulus and accommodative monetary
policy induces a slightly stronger recovery. Recent inﬂation data, the fall in oil and other commodity prices,
and the increase in the forecast for labor market slack has caused me to lower my forecast for inﬂation.
Respondent 15:
The key factors that have caused me to revise down my forecast are the generally weaker-than-expected data
over the past few months. In addition, ﬁnancial market conditions are not much improved from last time
and growth abroad appears to be deteriorating more than expected.
Respondent 16:
In October we judged it likely that the US economy would experience a recession of intensity similar to
1990-1. Incoming labor market data, the synchronized decline in the pace of global economic activity and in
creasing evidence of restricted credit ﬂows produced large downward revisions in our projections for 2009H1.
We view the continued decline in energy and other commodity prices as primarily a result of lowered expec
tations for global growth, partially oﬀsetting the net boost to real disposable income. The additional ﬁscal
measures likely to be introduced in the next few weeks are viewed as mainly mitigating downside risks in
this worsened macroeconomic environment.
Core inﬂation data surprised to the downside relative to our October forecast for three months in a row.
Many of our coincident measures of underlying inﬂation moved down sharply as we have added in the new
price data. Along with the large increase in economic slack this produced a large decline in the core inﬂation
forecast for 2009.
The downside risks to our central scenario projection have increased since October. The additional de
terioration in the labor market along with the decline in pace of global activity have increased the stress on
an already fragile ﬁnancial system. This has lead us to put more weight on the likelihood of a continued
adverse feedback loop between real activity and ﬁnancial stress. The magniﬁcation of this risk has also

Authorized for Public Release – 27 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

produced an overall downside risk to our inﬂation forecast, notwithstanding the weight we still place on
inﬂation above the mandate consistent range if the global economy does prove resilient.
In October the policy assumption underlying our central projection was a renormalization of the policy
rate in 2010-11. The large change in our forecast for real activity, the abrupt decline in inﬂation pressures
and the zero bound has led us to push back the start of the renormalization of the policy rate to 2011.
Further, we assume an extension of the scope and size of the TALF and more oﬃcial communication on
the link between policy rate renormalization and the Committee’s mandate for price stability. Given the
realization of the zero bound we have pushed up our assessment of the inﬂation rate consistent with the dual
mandate to 2% for the PCE deﬂator.

Authorized for Public Release – 28 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Figure 2.A. Distribution of participants’ projections for the change in real GDP, 2009–11
Number of participants

2009
January projections January
October projections Greenbook

October
Greenbook

12
10
8
6
4
2

-2.6-2.4-2.2-2.0-1.8-1.6-1.4- 1.2-1.0-0.8-0.6-0.4-0.2-0.0-0.2-0.4-0.6-0.8-1.0-1.2-1.4-1.6-1.8-2.0-2.2-2.4-2.6-2.8-3.0-3.2-3.4-3.6-3.8-4.0-4.2-4.4-4.6-4.8-5.0-5.2-5.4- - - - - - - - - - - -2.5-2.3-2.1-1.9-1.7-1.5-1.3-1.1-0.9-0.7-0.5-0.3-0.1 0.1 0.3 0.5 0.7 0.9 1.1 1.3 1.5 1.7 1.9 2.1 2.3 2.5 2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1 4.3 4.5 4.7 4.9 5.1 5.3 5.5

Percent range
Number of participants

2010
October
Greenbook

January
Greenbook

12
10
8
6
4
2

Percent range
Number of participants

2011
October
Greenbook

January
Greenbook

12
10
8
6
4
2

Percent range
NOTE: Definitions of variables are in the general note to table 1.

Authorized for Public Release – 29 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Figure 2.B. Distribution of participants’ projections for the unemployment rate, 2009–11
Number of participants

2009
January projections
October projections

October
Greenbook

January
Greenbook

12
10
8
6
4
2

4.4- 4.6- 4.8- 5.0- 5.2- 5.4- 5.6- 5.8- 6.0- 6.2- 6.4- 6.6- 6.8- 7.0- 7.2- 7.4- 7.6- 7.8- 8.0- 8.2- 8.4- 8.6- 8.8- 9.0- 9.24.5 4.7 4.9 5.1 5.3 5.5 5.7 5.9 6.1 6.3 6.5 6.7 6.9 7.1 7.3 7.5 7.7 7.9 8.1 8.3 8.5 8.7 8.9 9.1 9.3
Percent range
Number of participants

2010
October
Greenbook

January
Greenbook

12
10
8
6
4
2

2011
October
Greenbook

January
Greenbook

12
10
8
6
4
2

Authorized for Public Release – 30 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Figure 2.C. Distribution of participants’ projections for PCE inflation, 2009–11
Number of participants

2009
January projections
October projections

January
Greenbook

October
Greenbook

12
10
8
6
4
2

-0.5-0.4

-0.3-0.2

-0.10.0

0.10.2

0.30.4

0.50.6

0.70.8

0.91.0

1.11.2

1.31.4

1.51.6

1.71.8

1.92.0

2.12.2

Percent range
Number of participants

2010
January
Greenbook

October
Greenbook

12
10
8
6
4
2

-0.5-0.4

-0.3-0.2

-0.10.0

0.10.2

0.30.4

0.50.6

0.70.8

0.91.0

1.11.2

1.31.4

1.51.6

1.71.8

1.92.0

2.12.2

Percent range
Number of participants

2011
January
Greenbook

October
Greenbook

12
10
8
6
4
2

-0.5-0.4

-0.3-0.2

-0.10.0

0.10.2

0.30.4

0.50.6

0.70.8

0.91.0

1.11.2

1.31.4

Percent range
NOTE: Definitions of variables are in the general note to table 1.

Authorized for Public Release – 31 of 36

1.51.6

1.71.8

1.92.0

2.12.2

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Figure 2.D. Distribution of participants’ projections for core PCE inflation, 2009–11
Number of participants

2009
January projections
October projections

January
Greenbook

October
Greenbook

12
10
8
6
4
2

-0.10.0

0.10.2

0.30.4

0.50.6

0.70.8

0.91.0

1.11.2

1.31.4

1.51.6

1.71.8

1.92.0

2.12.2

Percent range
Number of participants

2010
January
Greenbook

October
Greenbook

12
10
8
6
4
2

-0.10.0

0.10.2

0.30.4

0.50.6

0.70.8

0.91.0

1.11.2

1.31.4

1.51.6

1.71.8

1.92.0

2.12.2

Percent range
Number of participants

2011
January
Greenbook

October
Greenbook

12
10
8
6
4
2

-0.10.0

0.10.2

0.30.4

0.50.6

0.70.8

0.91.0

1.11.2

1.31.4

1.51.6

Percent range
NOTE: Definitions of variables are in the general note to table 1.

Authorized for Public Release – 32 of 36

1.71.8

1.92.0

2.12.2

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Table 3
Longer-run Projections
Central Tendencies and Ranges
Central Tendency
Real GDP Growth
Unemployment Rate
Total PCE Inflation

Range

2.5 to 2.7
4.8 to 5
1.7 to 2

2.4 to 3
4.5 to 5.5
1.5 to 2

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

Real GDP Growth Unemployment Rate Total PCE Inflation
2.7
4.5
2.0
2.4
4.8
2.0
2.5
5.5
2.0
2.5
5.0
2.0
2.7
5.0
1.5
2.5
5.0
1.8
2.5
5.0
2.0
3.0
5.0
1.5
2.7
5.5
1.5
2.5
5.5
2.0
2.5
4.8
2.0
2.8
5.0
2.0
2.4
5.0
2.0
2.5
4.8
2.0
2.7
5.0
1.7
2.5
4.7
2.0

Authorized for Public Release – 33 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Longer-run Projections

(Optional) Please include any explanatory comments regarding your longer-run

projections that you think would be helpful.
Respondent 1:
Given typical cyclical patterns, the unemployment rate would likely not converge to 4.5 percent for at least
seven to eight years.
Respondent 2:
N/A
Respondent 3:
N/A
Respondent 4:
N/A
Respondent 5:
N/A
Respondent 6:
N/A
Respondent 7:
N/A
Respondent 8:
N/A
Respondent 9:
N/A
Respondent 10:
N/A
Respondent 11:
It takes longer than 5 years to reach the steady-state outcomes due to the bleak initial conditions of the
economy and the likely practical limitations that prevent monetary and ﬁscal policy from achieving steadystate outcomes within 5 years.
Respondent 12:
N/A
Respondent 13:
N/A
Respondent 14:
These numbers represent my best assessment of the rates to which the variables below would converge over
the longer run in the absence of shocks and assuming appropriate monetary policy. However, given the size
of the shocks buﬀeting the economy, I anticipate that the convergence process would likely take longer than
ﬁve or six years and may last up to eight or nine years.
Respondent 15:

Authorized for Public Release – 34 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

N/A
Respondent 16:
These are New York’s best estimates for the values requested in the trial run of the long-run projections.
Given current circumstances we have only limited conﬁdence in the estimates of long-run gdp growth and
”natural rate” of unemployment. We have increased our view of the long-run rate of inﬂation consistent
with the dual mandate in light of higher estimated likelihood of hitting the zero bound on nominal rates
with our previous desired long-run rate of inﬂation.

Authorized for Public Release – 35 of 36

SEP: Compilation and Summary of Individual Economic Projections

January 27–28, 2009

Figure 3. Distribution of participants’ longer-run projections for change in real GDP, unemployment, and PCE inflation
Number of participants

Change in real GDP
12

January projections
October projections

10
8
6
4
2

Percent range
Number of participants

Unemployment rate
12
10
8
6
4
2

4.44.5

4.64.7

4.84.9

5.05.1

5.25.3

5.45.5

5.65.7

5.85.9

6.06.1

6.26.3

6.46.5

6.66.7

6.86.9

7.07.1

7.27.3

7.47.5

7.67.7

7.87.9

8.08.1

8.28.3

8.48.5

8.68.7

8.88.9

9.09.1

9.29.3

Percent range
Number of participants

PCE inflation
12
10
8
6
4
2

-0.5-0.4

-0.3-0.2

-0.10.0

0.10.2

0.30.4

0.50.6

0.70.8

0.91.0

1.11.2

1.31.4

Percent range

Authorized for Public Release – 36 of 36

1.51.6

1.71.8

1.92.0

2.12.2

Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, January 28-29, 2009 : Summary of Economic Projections - Compilation and Summary of Individual Economic Projections

FRASER