Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, November 3-4, 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

November 3–4, 2009

Table 1: Economic Projections of Federal Reserve Governors and Reserve
Bank Presidents, November 2009
Percent
Variable

2009

Central tendency1
2010
2011
2012

Longer Run

2009

2010

Range2
2011

2012

Longer Run

Change in real GDP. . . . . . -0.4 to -0.1
June projection. . . . . . . -1.5 to -1.0

2.5 to 3.5
2.1 to 3.3

3.4 to 4.5
3.8 to 4.6

3.5 to 4.8
n/a to n/a

2.5 to 2.8
2.5 to 2.7

-0.5 to 0.0
-1.6 to -0.6

2.0 to 4.0
0.8 to 4.0

2.5 to 4.6
2.3 to 5.0

2.8 to 5.0
n/a to n/a

2.4 to 3.0
2.4 to 2.8

Unemployment rate. . . . . . 9.9 to 10.1
June projection. . . . . . . 9.8 to 10.1

9.3 to 9.7
9.5 to 9.8

8.2 to 8.6
8.4 to 8.8

6.8 to 7.5
n/a to n/a

5.0 to 5.2
4.8 to 5.0

9.8 to 10.3 8.6 to 10.2
9.7 to 10.5 8.5 to 10.6

7.2 to 8.7
6.8 to 9.2

6.1 to 7.6
n/a to n/a

4.8 to 6.3
4.5 to 6.0

PCE inflation. . . . . . . . . . .
June projection. . . . . . .

1.1 to 1.2
1.0 to 1.4

1.3 to 1.6
1.2 to 1.8

1.0 to 1.9
1.1 to 2.0

1.2 to 1.9
n/a to n/a

1.7 to 2.0
1.7 to 2.0

1.0 to 1.7
1.0 to 1.8

1.1 to 2.0
0.9 to 2.0

0.6 to 2.4
0.5 to 2.5

0.2 to 2.3
n/a to n/a

1.5 to 2.0
1.5 to 2.1

Core PCE inflation3. . . . . .
June projection. . . . . . .

1.4 to 1.5
1.3 to 1.6

1.0 to 1.5
1.0 to 1.5

1.0 to 1.6
0.9 to 1.7

1.0 to 1.7
n/a to n/a

1.3 to 1.6
1.2 to 2.0

0.9 to 2.0
0.5 to 2.0

0.5 to 2.4
0.2 to 2.5

0.2 to 2.3
n/a to n/a

NOTE: Projections of change in real gross domestic product (GDP) and of inflation are from the fourth quarter of the previous year to the fourth quarter of the year
indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively, the price index for personal consumption expenditures (PCE) and the
price index for PCE excluding food and energy. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year
indicated. Each participant's projections are based on his or her assessment of appropriate monetary policy. Longer-run projections represent each participant’s
assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy. The
June projections were made in conjunction with the FOMC meeting on June 23-24, 2009.
1. The central tendency excludes the three highest and three lowest projections for each variable in each year.
2. The range for a variable in a given year includes all participants' projections, from lowest to highest, for that variable in that year.
3. Longer-run projections for core PCE inflation are not collected.

Authorized for Public Release – 1 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Table 1a

Economic Projections for the First Half of 2009*

(in percent)

Central Tendencies and Ranges
Central Tendency

Range

Change in Real GDP

-3.6 to -3.6

-3.6 to -3.5

PCE Inflation

-0.1 to 0.0

-0.1 to 0.1

Core PCE Inflation

1.6 to 1.6

1.5 to 1.6

PCE Inflation
-0.1
-0.1
0.1
0.0
-0.1
-0.1
0.0
-0.1
0.0
-0.1
0.0
-0.1
0.0
-0.1
-0.1
-0.1
-0.1

Core PCE Inflation
1.6
1.6
1.6
1.6
1.6
1.6
1.5
1.6
1.5
1.6
1.6
1.6
1.6
1.6
1.6
1.6
1.6

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

Change in Real GDP
-3.6
-3.6
-3.6
-3.6
-3.6
-3.6
-3.5
-3.6
-3.5
-3.6
-3.6
-3.6
-3.6
-3.6
-3.6
-3.6
-3.6

* Growth and inflation are reported at annualized rates.

Authorized for Public Release – 2 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Table 1b

Economic Projections for the Second Half of 2009*

(in percent)

Central Tendencies and Ranges
Central Tendency

Range

Change in Real GDP

2.9 to 3.5

2.7 to 3.7

PCE Inflation

2.1 to 2.5

2.0 to 3.4

Core PCE Inflation

1.2 to 1.4

1.0 to 1.6

PCE Inflation
2.5
2.5
2.1
3.4
2.5
2.1
3.0
2.3
2.4
2.3
2.4
2.3
2.0
2.5
2.3
2.3
2.1

Core PCE Inflation
1.2
1.4
1.0
1.6
1.2
1.2
1.5
1.2
1.5
1.2
1.4
1.2
1.2
1.2
1.2
1.2
1.2

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

Change in Real GDP
2.7
3.7
2.9
2.7
2.9
2.9
3.6
3.3
3.4
3.1
3.5
3.3
3.5
3.3
3.1
2.9
3.5

* Projections for the second half of 2009 implied by participants' November 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

November 3–4, 2009

Table 2: November 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

-0.5
0.0
-0.4
-0.5
-0.4
-0.4
0.0
-0.2
-0.1
-0.3
-0.1
-0.2
-0.1
-0.2
-0.3
-0.4
-0.1

10.3
10.0
10.1
10.2
10.1
9.9
9.9
10.0
9.8
9.9
10.0
10.0
10.0
10.1
10.1
10.0
10.0

1.2
1.2
1.1
1.7
1.2
1.0
1.5
1.1
1.2
1.1
1.2
1.1
1.0
1.2
1.1
1.1
1.0

1.4
1.5
1.3
1.6
1.4
1.4
1.5
1.4
1.5
1.4
1.5
1.4
1.4
1.4
1.4
1.4
1.4

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

3.0
3.0
2.1
2.4
3.1
3.0
4.0
3.5
3.6
2.5
3.5
2.5
2.0
3.4
3.4
2.9
3.7

9.7
8.6
9.7
9.7
9.8
9.5
9.2
9.4
9.3
9.5
9.4
9.7
10.2
9.5
9.5
9.6
9.3

1.2
2.0
1.2
1.8
1.5
1.1
2.0
1.3
1.5
1.4
1.6
1.5
1.4
1.4
1.4
1.3
1.4

1.0
2.0
1.2
1.5
1.1
1.2
2.0
1.0
1.5
1.4
1.3
1.0
1.1
0.9
1.1
1.1
1.1

Authorized for Public Release – 4 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Table 2 (continued): Economic Projections

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

2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011
2011

4.4
3.0
2.5
3.3
4.6
4.1
3.8
4.4
4.1
3.4
4.5
4.5
4.0
4.3
4.4
4.4
4.5

8.6
7.2
8.5
8.7
8.6
7.9
8.2
8.2
8.3
8.2
8.2
8.7
8.6
8.5
8.2
8.5
8.0

1.0
2.4
1.3
1.9
1.6
1.9
2.0
1.1
1.5
2.0
1.5
1.5
1.7
0.6
1.0
1.3
1.0

1.0
2.4
1.3
1.6
1.0
1.6
2.0
1.0
1.5
2.0
1.5
1.0
1.5
0.5
1.0
1.2
1.0

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

2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012

4.8
3.0
2.8
3.6
4.8
4.0
3.5
4.4
3.5
3.5
4.5
4.8
5.0
4.5
5.0
4.0
4.5

7.0
6.5
7.6
7.0
7.4
6.8
7.2
6.8
7.5
7.5
7.0
7.5
7.0
7.3
6.1
7.3
6.5

1.3
2.0
1.5
1.9
1.4
1.9
1.5
1.0
1.5
2.3
1.7
1.5
2.0
0.2
1.2
1.5
1.0

1.3
2.0
1.5
1.7
0.9
1.7
1.5
1.0
1.5
2.3
1.7
1.2
2.0
0.2
1.1
1.5
1.0

Authorized for Public Release – 5 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Table 2 (continued): 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
LR
LR
LR
LR
LR
LR
LR
LR
LR
LR
LR
LR
LR
LR
LR
LR
LR

2.5
2.8
2.5
2.5
2.6
2.6
2.8
2.5
2.7
3.0
2.5
2.8
2.4
2.5
2.8
2.5
2.8

4.8
5.3
5.2
6.3
5.1
5.0
5.3
5.0
5.0
5.0
5.2
5.0
5.0
5.0
5.0
5.0
5.0

PCE Inflation
2.0
1.7
2.0
2.0
2.0
2.0
1.5
2.0
1.5
2.0
2.0
1.5
2.0
2.0
2.0
1.8
2.0

Authorized for Public Release – 6 of 36

Core PCE Inflation

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Figure 1. Central tendencies and ranges of economic projections, 2009–12 and over the longer run
Percent

Change in real GDP

Central tendency of projections
Range of projections

Actual

+
0
_

2004

2005

2006

2007

2008

2009

2010

2011

2012

Longer

run
Percent

Unemployment rate

2004

2005

2006

2007

2008

2009

2010

2011

2012

Longer

run
Percent

PCE inflation
3

2004

2005

2006

2007

2008

2009

2010

2011

2012

Longer

run
Percent

Core PCE inflation
3

2004

2005

2006

2007

2008

2009

2010

2011

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 – 7 of 36

2012

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 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 B
B B B B B B B B B

10 11 12 13 14 15 16 17
A
B

A
B

Authorized for Public Release – 8 of 36

A
C

A
B

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 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)

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

10 11 12 13 14 15 16 17
A
B

A
B

A
A

Authorized for Public Release – 9 of 36

A
A

A
B

A
A

A
B

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 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)

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

10 11 12 13 14 15 16 17
A
A

A
B

Authorized for Public Release – 10 of 36

A
C

A
B

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 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 A A B A A A C
B A B B B B B B B

10 11 12 13 14 15 16 17
A
A

A
B

Authorized for Public Release – 11 of 36

A
C

A
B

A
C

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Longer-run Projections

1(c). If you anticipate that the convergence process will take shorter or longer
than about ﬁve 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:
In light of the severity and breadth of shocks to the economy and the continuing, though reduced, risk of
more to come, the convergence process may well extend beyond ﬁve or six years to something closer to eight
years.
Respondent 2:
N/A
Respondent 3:
N/A
Respondent 4:
Convergence process likely to take somewhat longer.
Respondent 5:
N/A
Respondent 6:
At a 5-6 year horizon, the economy has yet to fully converge for output and unemployment. Given the
substantial weakness in my near-term projection, the convergence process will likely take 7-8 years.
Respondent 7:
I anticipate that the convergence process for real GDP growth and inﬂation will be substantially shorter
than 5-6 years, perhaps on the order of three years for real growth (with a period of overshoot of real growth
in the interim during recovery), and an overshoot in the interim in inﬂation as a consequence of signiﬁcant
near term growth in the monetary base supported by longer term asset purchases that cannot be sold oﬀ
over a very short time period. I anticipate that the decline in the unemployment rate will lag behind the
recovery of real growth.
Respondent 8:
I expect that the economy will take about six or seven years to converge fully because of the magnitude of
the forecasted degree of slack and the limits on monetary stimulus resulting from the zero lower bound on
interest rates.
Respondent 9:
N/A
Respondent 10:
Unemployment will take longer than ﬁve or six years.
Respondent 11:
N/A
Respondent 12:
Convergence is likely to be unusually slow given the damage to the ﬁnancial sector, the depth of the recession,
and the diﬃcult domestic and global adjustments required.

Authorized for Public Release – 12 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Respondent 13:
By 2015-16 potential growth is 2.4%, down from our current estimate of 2.5-2.7%, as the babyboomers re
tire. A reasonable estimate for the long-run unemployment rate is 4.5% to 5.5%. We would expect, with
appropriate policy and no further adverse shocks, unemployment to be in this range and the output gap to
be around zero by 2015-16.
We assume long-term inﬂation expectations to be anchored around 2.5% on a CPI basis and the FOMC’s
inﬂation objective to be around 2% for the PCE deﬂator and around 2.5% for the CPI. Under these condi
tions, with the output gap around zero, we would expect PCE inﬂation of around 2%.

Respondent 14:
Convergence to the real economy’s equilibrium and to the inﬂation objective within ﬁve years requires lower
long-term interest rates in the near-term than what is assumed in the baseline outlook. Absent such a reduc
tion in long-term rates, it is unlikely that the dual mandate’s objectives will be achieved within a ﬁve-year
horizon.
Respondent 15:
N/A
Respondent 16:
If appropriate policy is followed, I would expect convergence to occur within ﬁve to six years. However, I am
concerned that delaying the removal of policy accommodation and the shrinkage of our balance sheet could
result in higher inﬂation and mean more time is required to reach a desired inﬂation rate of 1.8 percent.
Respondent 17:
Growth and the unemployment rate should converge over the next 5 years, but inﬂation may still be below
my preferred long-run rate.

Authorized for Public Release – 13 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 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:
Financial market conditions continue to improve and the economy is in recovery. However, the impact of
ﬁscal stimulus going forward has raised uncertainty around my projected path for real output growth. In
addition, the eﬀect of the extraordinary monetary policy accommodation in place and the uncertainty about
the timing of when we will exit from that accommodation have increased the uncertainty around my inﬂation
forecast.
Respondent 3:
N/A
Respondent 4:
N/A
Respondent 5:
N/A
Respondent 6:
N/A
Respondent 7:
N/A
Respondent 8:
The global economic downturn and uncertainty about the eﬀects of ﬁscal policy and unconventional mone
tary policies increase uncertainty regarding the outlook for economic activity.
Problems in commercial real estate, and more generally, the continued vulnerability of ﬁnancial institu
tions, pose downside risks to ﬁnancial stability and the outlook for economic activity. On the other hand,
more rapid healing of ﬁnancial markets and a rebound in conﬁdence may provide greater impetus to growth
than expected. Heightened risks to the outlook for economic activity and employment, as well as the elevated
variability of commodity prices, raise uncertainty regarding the outlook for inﬂation.
Respondent 9:
I believe that uncertainty regarding projections for GDP and unemployment are now about average. Inﬂation
projections would be more ﬁrmly anchored under an appropriate monetary policy, and therefore uncertainty
would be lower than the trailing 20-year average.
Respondent 10:
Volatility was unusually low during the past twenty years. I expect that the future will be more volatile.
Respondent 11:
The severity of the recession means the uncertainty over cyclical dynamics is greater than it has been over the
past twenty years. The unevenness of the improvement in credit conditions–with capital markets functioning
much better but bank lending still appearing to be capacity constrained–also adds unusual uncertainty. So

Authorized for Public Release – 14 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

do the implications of the unprecedented expansion of the Federal Reserves balance sheet.
Respondent 12:
N/A
Respondent 13:
Quantitative judgment based on standard deviation of FRBNY forecast distribution for GDP growth and
core PCE inﬂation relative to forecast errors over the last 20 years.
Respondent 14:
N/A
Respondent 15:
N/A
Respondent 16:
N/A
Respondent 17:
The situation–of recovery from severe recession and ﬁnancial crisis along with the eﬀects of extraordinary
monetary and ﬁscal stimulus–has no precedent in post-war history and so uncertainty about how agents and
markets will respond is unavoidably high.

Authorized for Public Release – 15 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 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:
Incoming data have led me to revise up slightly my near-term path for growth and raise my path for the
unemployment rate compared to my June forecast. I view the risks to growth and the unemployment rate
as roughly balanced. Over the longer term, inﬂation risk is tilted to the upside reﬂecting uncertainty about
the timing of the Fed’s withdrawal of accommodation.
Respondent 3:
N/A
Respondent 4:
N/A
Respondent 5:
N/A
Respondent 6:
N/A
Respondent 7:
Going forward into 2010 as the economy recovers from the recent recession and experiences the ﬁscal stimulus
program as well as a substantial persistent increase in the monetary base, I believe that the risks to real
growth will become weighted to the upside. In the near term I see the risks to inﬂation as broadly balanced.
Respondent 8:
Although the risks to the outlook for growth, unemployment, and inﬂation are greater than usual, they are
each roughly in balance.
Respondent 9:
N/A
Respondent 10:
N/A
Respondent 11:
N/A
Respondent 12:
N/A
Respondent 13:
Quantitative judgment based on the diﬀerence between projection and expected value from FRBNY forecast
distribution. For inﬂation, risks are to the downside in the near to medium term and slightly to the upside
in the longer term. Given the downward revision in our modal inﬂation projection since June we now assess
the overall balance to the downside

Authorized for Public Release – 16 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Respondent 14:
N/A
Respondent 15:
N/A
Respondent 16:
In the near term, the weakness of the economy and recent price trends pose some downside risks to core and
overall inﬂation. However, in the medium to long term, the expansion of our balance sheet and increased
public nervousness about increases in our balance sheet and federal borrowing present upside risks to inﬂation.
Respondent 17:
risks to core inﬂation are weighted to the downside by the possibility that inﬂation expectations begin to
move lower as inﬂation continues to come in below current expectations in the context of persistent large
output gaps. The eﬀects of this risk on headline inﬂation are balanced by the possibility that growth in
EMEs puts added pressure on the prices of petroleum and other natural resources.

Authorized for Public Release – 17 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 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
12

NO
5

Respondent 1: No
N/A
Respondent 2: Yes
My forecast continues to assume a less accommodative federal funds rate than in the Greenbook baseline. I
view the appropriate monetary policy as one that raises the funds rate to about 2.5 percent by the end of
2010 and 3.5 percent by the end of 2011. By the end of 2012, I see the funds rate at about 4.5 percent.
Respondent 3: No
N/A
Respondent 4: Yes

Expect policy to normalize materially sooner than Greenbook base case.

Respondent 5: Yes

For reasons relating to “side eﬀects” of ultra-low rates (e.g., on the dollar, inﬂation expectations, and risk-

taking), may need a modest move toward normalization (e.g., 100bp) in 2010:H2.

Respondent 6: Yes

Due to a stronger inﬂation proﬁle in my outlook, the federal funds rate begins to increase gradually in the

second half of 2010.

Respondent 7: Yes

While the pattern of recovery from the recent recession is uncertain, I believe that under appropriate mon
etary policy to maintain price stability we will have to move away from the current target range for the

funds rate as part of the process of withdrawing from quantitative easing much sooner than assumed in the

Greenbook forecast.

Respondent 8: No
N/A
Respondent 9: Yes

I believe that under an appropriate monetary policy the committee would announce a numerical inﬂation

objective. In order to achieve that objective, the funds rate will begin to increase next year.

Respondent 10: Yes

I expect that the Fed Funds rate will be raised above its current low level sometime in 2010.

Respondent 11: Yes

We expect that the federal funds rate will follow a path near to slightly above that expected by futures

markets.

Respondent 12: No
N/A

Authorized for Public Release – 18 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Respondent 13: Yes
Through 2009-10 identical. We assume the normalization of interest rates starts in 2011 and continues at
a faster rate in 2012. Because of diﬀerences in our inﬂation forecast, the diﬀerence in real rates is less
substantial. Our views on the size of the balance sheet are close to the Greenbook assumption.
Respondent 14: Yes
The forecast is conditioned on roughly the same short- and long-term interest rates assumptions as in the
Greenbook. But this path for the interest rates is not consistent with achieving the dual mandate’s goals
over a ﬁve-year horizon.
Respondent 15: No
N/A
Respondent 16: Yes
I expect that it will be necessary to begin raising the target for the federal funds rate in 2010, in contrast to
the Greenbook assumption that the current target range is maintained through 2011. Holding rates down
so low so long would invite asset imbalances and risk repeating past mistakes. In my judgment, appropriate
policy will also involve taking steps to reduce the size of our balance sheet and normalize its composition in
a timely manner.
Respondent 17: Yes
I assume that the policy rate begins to rise around the middle of 2011, responding to my slightly stronger
output forecast than in the Greenbook.

Authorized for Public Release – 19 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Forecast Narratives

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

and the uncertainty around that outlook.

Respondent 1:
Key factors include widespread expectations of slow employment growth and consequent drag on consump
tion and uneven nature of housing market recovery. Key uncertainty is impact of diminution in eﬀects of
stimulus and of our LSAP program in ﬁrst half of 2010.
Respondent 2:
The recent data on labor markets have been somewhat weaker than what I anticipated in my June forecast
and have led me to revise upward slightly my path for the unemployment rate. As well, I revised up my
near-term path for growth based on the stronger-than-expected data. In my view, the economy is now is in
recovery and I expect an above-trend pace of 3 percent growth in 2010 as recovery dynamics take hold. I
expect growth above trend in 2011 and 2012. The labor market recovery is gradual — I expect the unem
ployment rate edges down to about 6.5 percent by the end of the forecast horizon, at which time it remains
above the natural rate of unemployment by a bit over 1 percentage point. I anticipate that inﬂation will rise
into 2011 then pull back in 2012 in response to tighter monetary policy. In my view, the substantial liquidity
that is now in the ﬁnancial system raises the risk that inﬂation will rapidly accelerate to unacceptable levels
and that inﬂation expectations will become unanchored. To ward oﬀ these developments, the FOMC will
need to commence a steady tightening of monetary policy that begins some time in 2010.
Respondent 3:
I have assumed a very modest boost to spending from ﬁscal stimulus that largely dissipates in the ﬁrst
half of 2010. Although ﬁnancial market function is notably improved, ﬁnancial ﬁrm balance sheets are still
quite fragile and some ﬁnancial markets remain dysfunctional, obstructing somewhat the ﬂow of credit to
households and businesses. I also project a further rise in the personal savings rate as household attempt
to further improve their balance sheets. Moreover, the extraordinarily high level of uncertainty about the
outlook is likely to also inhibit the recovery process relative to historical experience. I have assumed that
these types of factors will combine to restrain potential growth in the economy for some time.
Respondent 4:
Expect less medium term beneﬁt from ﬁscal stimulus. Expect higher NAIRU, lower productivity, and some
what lower growth rates throughout forecast period. Finding new equilibrium will take somewhat longer
than a typical recovery.
Respondent 5:
Moderate growth in 2010:H2 is unfolding as expected, reﬂecting the inventory cycle; some improvement in
housing and equipment investment; support from ﬁscal policy, including one-oﬀ factors such as cash for
clunkers and the ﬁrst-time homebuyers’ credit; continued improvement in equity and credit markets, though
less so in banks; some stabilization in household spending; and stronger global growth, especially in Asia.
Slow to moderate growth (a subpar recovery) is likely in 2010, though uncertainty about 2010 is high. An
important potential drag on growth in 2010 is the likelihood of a jobless recovery, the product of employer
caution and uncertainty; the ability of employers to wrest productivity gains; and tight credit, particularly
relevant for smaller ﬁrms. Although household spending should be supported by increased wealth, somewhat
better credit availability, and rising income and sentiment, the weakness in the labor market and continuing
concerns about household leverage should restrain the increase in consumption spending in 2010. Global
growth will help manufacturing and increase the proﬁts of US ﬁrms, but the eﬀects on the prices of oil and
other commodities will be a negative. Also, net exports will not contribute signiﬁcantly to overall growth,
and the current account may worsen a bit. Housing may slow as the Fed stops buying MBS, foreclosures
rise, and tax credits expire. In all, growth in 2010 will be insuﬃcient to reduce unemployment signiﬁcantly.

Authorized for Public Release – 20 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Beyond 2010 the normal recovery pattern should assert itself more strongly. Medium-term potential growth
rates may be slightly better, due to good productivity performance, but there may be a downward level shift
in potential output going on now, reﬂecting lower investment, labor market disruptions (loss of skills, for
example), and the need for reallocation among industries. Imbalances, including those related to bank and
household balance sheets, ﬁscal policy, industry mix, and the current account will complicate the return to
sustainable growth.
Resource slack, including high vacancy rates in apartments, will keep core inﬂation moderate (probably
declining slowly). Rapid (perhaps too rapid) growth in emerging markets, plus a weaker dollar, could put
upward pressure on commodity prices, leading to headline inﬂation rates above core rates.

Respondent 6:
The consumer will continue to be under considerable strain well into 2010 and possibly beyond, facing an
extremely weak labor market, low net worth, and tight credit conditions. Commercial real estate is also
distressed–with rising vacancy rates and tight credit–and is likely to remain so for some time. Slower inven
tory reductions and eventual inventory gains lead to positive contributions to GDP growth over the next
several quarters. The robust resumption of foreign growth, notably from Asia, supports strong export growth
in the near-term.
My forecast assumes that inﬂation expectations will be “anchored” near current levels of roughly 2% through
out the forecast period. Considerable uncertainty surrounds this assumption. Incoming data indicating that
either a substantive deceleration or acceleration in core prices could push expectations in the same direction.
Additionally, worries of an impending inﬂationary episode due to the Federal Reserve’s balance sheet actions
could move expectations higher.
Respondent 7:
The unfolding path of economic activity in the ﬁrst three quarters of 2009 is consistent with my earlier
expectation of a slowing contraction in the ﬁrst half of the year, with output bottoming out in the middle of
the year and recovery in the second half. Hence I have not revised my previous forecast for real growth. In
2010 and 2011 I anticipate that real growth will occur at greater than steady-state rates, reﬂecting normal
cyclical patterns reinforced by a modest impact of the ﬁscal stimulus package and the impact of the sub
stantial monetary stimulus that has been in train since last fall. I expect that subsequently growth will slow
and approach steady-state rates. Core PCE inﬂation from the fourth quarter of last year through the third
quarter of 2009 is in the range of 1.5 percent at an annual rate – lower than I previously expected. I do not
see this rate of inﬂation abating in the near future. While headline PCE inﬂation from the fourth quarter of
last year through the third quarter of 2009 is slightly less than one percent at annual rates, recent increases
in energy prices lead me to expect that the headline rate will approach the core rate as 2009 progresses.
Subsequently, under appropriate monetary policy, inﬂation should approach my preferred long-run rate of
1.5 percent, though I believe that it will rise above that rate in an interim period. 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 in the out years of the projection period.
Respondent 8:
Recent economic indicators–including consumer spending, housing starts, and industrial production–have
turned positive, suggesting a moderate recovery is in train. Business inventory investment is poised to
rebound strongly. Foreign economies also show signs of stabilizing. However, labor markets continue to
deteriorate and business spending remains weak.
Financial conditions have improved. I expect that the process of healing the banking and ﬁnancial sec

Authorized for Public Release – 21 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

tors will proceed slowly and impaired ﬁnancial intermediation will interfere with the pace of recovery for
some time. In addition, households are in the midst of a lengthy process of repairing their balance sheets
that have been weakened by massive stock and housing market losses and debt accumulation. Fiscal and
monetary stimulus provide key drivers for recovery over the next few years.
Signiﬁcant slack in labor and goods markets should keep inﬂation low, but well-anchored inﬂation expecta
tions should help avoid sustained deﬂation.
Respondent 9:
I believe the recession ended this summer. The recovery is likely to be less robust than average, due to the
continuing drag from commercial construction and a weak recovery in housing and autos. I believe that ﬁscal
policy eﬀects will be smaller than generally projected, and consequently my outlook is not heavily dependent
on the amount and timing of additional ﬁscal policy actions.
Respondent 10:
Financial and labor markets have both stabilized. However, bank lending is low and unemployment is high.
At the same time, bank holdings of excess reserves are large.
Respondent 11:
There is substantial uncertainty over the degree to which losses associated with the deep recession will af
fect banks’ lending capacity and thus their ability to meet the ﬁnancing needs of small and medium-sized
businesses. The potential needs for structural reallocation also impart uncertainty both for actual output
and the measurement of resource gaps–although the gaps will be very large for some time under plausible
scenarios. Consumer and business sentiment could prove fragile–either on the up or down side–and related
potential swings in conﬁdence impart further uncertainty onto the forecast. Accordingly, there are bimodal
aspects to the outlook. In the downside scenario, growth is held back by continued disruptions to credit
ﬂows and the negative eﬀect on sentiment of an economy that does not bounceback robustly from the deep
recession. In the upside case, accommodative policy and further improvement in credit ﬂows support spend
ing. Furthermore, continued gains in output bolster conﬁdence enough to cause a spurt in spending from
plans that had been put on hold during the recession. Our forecast averages these scenarios–but because we
see both as very plausible, we think the uncertainty over the expected outcome is higher than usual.
Respondent 12:
Despite encouraging developments, we are very far from being out of the woods. Wage and salary incomes
have fallen sharply, putting intense strain on household ﬁnances. The deteriorating performance of consumer
and commercial real estate loans could put new pressure on the ﬁnancial system if the economy does not
gain meaningful traction soon. Fiscal stimulus and a slowing rate of inventory liquidation will carry us only
so far. The banking outlook, especially for global banks that are too big to fail, is the wild card impacting
the transmission of monetary policy. And the plethora of new economic and regulatory initiatives is creating
uncertainty among business decision makers–uncertainty that might retard commitments to expansion of
employment and CAPEX in the U.S.
Respondent 13:
In our central projection, the recovery of the US economy began in 2009Q3 after a post WWII record fourquarter decline of real GDP of nearly 4%. Indeed, based on the advance estimate, real GDP rose at 3.5%
rate in 2009Q3, and growth in the fourth quarter is expected to be comparable to that of the third, which is
stronger than we expected in June. Real personal consumption expenditures increased 3.4% in 2009Q3, due
largely, but not entirely, to the boost to light-weight vehicle sales provided by “cash for clunkers.” Similarly,
single-family housing starts have moved up more than anticipated due to the strong response to the ﬁrst
time home buyer tax credit as well as the success of the Fed’s purchases of agency MBS in lowering mortgage
interest rates. Finally, led by the auto sector, the inventory cycle is turning out to be stronger than expected,
likely contributing 2 to 2 1 percentage points to the second half growth rate.
2

Authorized for Public Release – 22 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Despite the stronger-than-expected second half growth of real GDP, labor market conditions are turning
out to be only modestly better than expected in June. On the plus side, it now looks as though the unem
ployment rate will average closer to 10% in 2009Q4 rather than the 10-1/2% previously expected. However,
in 2009Q3 hours worked continued to decline more rapidly than employment while the rate of increase of
wages and salaries continued to slow. For 2009Q3, aggregate wage and salary disbursements were 5.2%
below year-ago levels, the steepest year-over year decline of the post WWII period. Initial claims for un
employment insurance have declined from their peak but remain stubbornly high at around 530,000 per week.
In contrast, inﬂation has behaved closer to our June projection. Total PCE deﬂator inﬂation will likely
increase at a 2% annual rate in the second half of 2009 after being essentially zero over the ﬁrst half of the
year, reﬂecting the large swings in energy prices. Core inﬂation has been stable, but numerous indicators
are consistent with the view that the large amount of slack in the economy is putting downward pressure on
underlying inﬂation.
For 2010 we continue to project growth of real GDP around 2%, with the ﬁrst half of the year notably
weaker than the second half. If the swing in the inventory cycle is very strong in 2009Q4, it is quite pos
sible that GDP growth could be could be considerably higher than our projection for Q4 but then much
weaker in the ﬁrst half of 2010. As growth in 2010 is below our estimate of potential, there is some further
upward movement of the unemployment rate to around 10 1 % by midyear. This is very sluggish growth for
4
the ﬁrst full year of recovery and is below the consensus forecast. A key feature of this projection is that
the signiﬁcant headwinds confronting the household sector prevent a typical cyclical rebound of consumer
spending. Payroll employment is roughly ﬁve percent below its peak level and expected to recover very
slowly. The household sector has made only minimal progress in reducing its substantial debt overhang. The
eﬀects of the stimulus bill on taxes and transfers are largely behind us, and energy prices have increased
from recent lows. While the stock market and home prices have risen, we estimate that as of 2009Q3 the
ratio of household net worth over disposable income remains roughly 20% below its peak. Finally, while
credit conditions appear to be gradually easing, we expect them to remain tight relative to the standards of
the recent past.
A second key feature of our forecast is that while it appears that the correction in housing production
is over, it is unlikely that there will be the surge of residential investment because tightened mortgage un
derwriting standards constrain demand and high volumes of foreclosed homes will continue to come onto the
market. Finally, new construction of multifamily units has taken a distinct movement downward reﬂecting
excess supply of condos and high rental vacancy rates. With consumption and residential investment recov
ering on a gradual path, it follows that any recovery of business investment in new equipment and software
and new structures is likely to be delayed. This is even more the case given the steepness of the decline of
output during the recession, which has led to historically low capacity utilization rates, rapidly rising retail
and oﬃce vacancy rates, and sharply declining prices for existing commercial real estate. Also contributing
to the relatively tepid growth expected for 2010 is the ongoing structural adjustment taking place in the
state and local government sector which is expected to result in signiﬁcant declines in employment in this
sector for much of the ﬁrst half of the year. Finally, while growth prospects for our trading partners have
generally improved, suggesting a rebound of exports, improving ﬁnal domestic demand will be associated
with rapidly increasing imports. As a result, net exports are unlikely to be a major contributor to growth
over the forecast horizon.
By the second half of 2010 and into 2011 we expect headwinds to dissipate and the recovery to gather
steam, with growth of 4% in 2011 and a further improvement to 5% in 2012. With this above potential
growth, the unemployment rate should be approaching 7% by the end of 2012. Underlying this projection is
the expectation that ﬁnancial market functioning returns to more normal conditions and that consumer and
business conﬁdence and the general appetite for risk taking have been restored. With household income and

Authorized for Public Release – 23 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

balance sheets improving and credit ﬂowing more normally, the substantial pent-up demand for consumer
durables, housing, and business equipment and software will start to be satisﬁed. Moreover, the structural
adjustments of state and local governments and of the commercial real estate sector will likely have run their
course by that time.
Barring a signiﬁcant decline in either or both the level of the economy’s potential output or its poten
tial growth rate, this point forecast implies that a large output gap will persist over most of the forecast
horizon. Accordingly, we expect core inﬂation to slow to around 1% in 2010, with a sizeable risk that it could
be even lower. But by late 2010 and into 2011, as ﬁnal demand ﬁrms within the context of anchored inﬂa
tion expectations, we expect core inﬂation to start a move back towards our view of the FOMC inﬂation goal.
The risks to our central projection for real activity are still signiﬁcant and remain skewed to the down
side. In the near-term, the key risk remains that ﬁnancial market conditions and consumer and business
conﬁdence do not improve as 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 low path of household net worth embedded in our
central projection induces a steeper-than-expected increase of the personal saving rate, keeping consumer
spending weaker for longer. The sharp decrease in the prime age employment rate during the current cycle,
combined with the large share of Americans nearing retirement age, make this risk particularly acute. Finally,
an important risk over the medium term is the uncertainty surrounding our assumption of the economy’s
potential growth rate. There is considerable concern that with the weakness of business investment and a
necessary reallocation of labor and capital, the economy’s potential growth rate has slowed signiﬁcantly. On
the other hand, recent productivity numbers have been surprisingly strong. Another source of risk to the
forecast is on the ﬁscal policy front. Under current law many of the tax provisions enacted in 2001 and 2003
are scheduled to expire at the end of 2010. The outcome of the debate over these provisions could potentially
have a signiﬁcant impact on both growth prospects and inﬂation expectations. Finally, relatively modest
changes in variables such as productivity growth, the participation rate, and the average work week could
end up having a signiﬁcant impact on the ultimate path of the unemployment rate.
The risks around the central scenario for inﬂation are to the downside. Clearly, the still signiﬁcant downside
risk to the growth projection combined with the possibility of no meaningful decline in potential implies
downside risk to the inﬂation projection. In contrast, with the aggressive global monetary and ﬁscal policy
response to the ongoing ﬁnancial crisis could eventually raise inﬂationary pressures more than expected,
leading to some risk of higher inﬂation towards the end of the forecast horizon.
The heightened uncertainty associated with recoveries from banking and ﬁnancial crisis as well as the uncer
tainty associated with the timing, magnitude, and eﬀectiveness of policy responses produces relatively high
uncertainty around our central projection compared to typical levels.
Respondent 14:
Recent data on the pace of economic activity have been, overall, positive. The good news on the pace of
growth in the second half of this year, however, has to be placed in a context in which the level of economic
activity remains very low. The unemployment rate is now at a level very similar to the rate hypothesized in
the stress test scenario for banks conducted earlier this year. There is still little improvement at this point
in privately-generated sources of income, with households’ disposable income being signiﬁcantly supported
by the ongoing ﬁscal stimulus. Over the course of the forecast horizon, the economy faces the challenge of
shifting away from the support oﬀered by the ﬁscal stimulus and to income generated by the private sector.
In this regard, incoming data are not very comforting. Wage growth has slowed signiﬁcantly and the high
level of unemployment suggests continued weakness in wages over most of the forecast horizon. In addition,
credit availability is likely to place constraints on both households’ and ﬁrms’ spending in the early stages
of the recovery.

Authorized for Public Release – 24 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

In all, we expect the ongoing recovery to make only a relatively small dent to the unemployment rate
gap by the end of 2011. Given the sizable slack in the labor market over the forecast horizon, the rate of
core inﬂation hovers around zero in 2011 and 2012.
The risks to activity have become somewhat more balanced, but the downside risks at this point are much
more costly than the potential upside, given that a faster-than-expected recovery is unlikely to generate
meaningful inﬂationary pressures. The risks to inﬂation continue to be on the downside. Given the unem
ployment rate forecast, several accelerationist Phillips curve models would predict outright deﬂation starting
in the second half of 2010.
Respondent 15:
N/A
Respondent 16:
The economy has now begun a recovery that, over the next year or so, is likely to be sluggish by historical
standards, due to some important economic and ﬁnancial headwinds. The recovery is driven in part by
highly stimulative monetary and ﬁscal policy. But because temporary tax incentives pulled forward some
auto and home sales and the stimulus from ARRA will turn to a drag in the second half of 2010, the pace
of expansion is likely to be slower over the next year or so than in the third quarter of this year. The
headwinds include some lingering impairment of ﬁnancial market functioning, the problems in commercial
real estate and their broader implications for bank lending and credit availability, the likely need for further
de-leveraging by consumers, and businesses’ uncertainty about the economic environment. Over the medium
term, as uncertainty diminishes and consumer spending maintains a sustained rate, business spending should
pick up and contribute signiﬁcantly to economic growth.
In light of the weakness of the economy and recent price trends, I expect core inﬂation to remain low
through at least the next year. However, over time, as the recovery continues, inﬂation is likely to move up,
to a level more in line with long-term inﬂation expectations. Dollar depreciation and increases in energy
prices will help to move core inﬂation higher.
With the economy and ﬁnancial markets still in highly unusual circumstances, the uncertainty surrounding
the outlook for growth and inﬂation remains high by historical standards. However, I think the risks are now
broadly balanced. All of the headwinds facing the economy, such as the problems in commercial real estate,
pose downside risks to GDP growth. But on the positive side, the surprising strength of the economy in
the third quarter could maintain momentum. Reﬂecting the overall resiliency of the economy and historical
patterns, the sharp recession could be followed by a healthy recovery. In the case of core inﬂation, the
weakness of the economy poses a near-term downside risk, while the expansion of our balance sheet and
public nervousness about our balance sheet and federal borrowing pose longer-term upside risks.
Respondent 17:
the economy recovers as housing declines, inventory destocking, and other factors previously weighing on
demand abate. But the growth in ﬁnal demand continues to be constrained by impairment of some securi
tization markets, only gradual easing in credit availability from banks, past declines in wealth, and business
and household caution following the severe downturn and weak recovery in labor markets.

Authorized for Public Release – 25 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Forecast Narratives (continued)

4(b). Please indicate the extent to which the BEA’s redeﬁnition of core PCE
inﬂation has led you to adjust your current projections for that variable,
relative to the projections that you submitted last June. (For 2009 and
beyond, the BEA’s redeﬁnition has led the staﬀ to raise its projections for core
PCE inﬂation by about 0.1 percentage point per year.)
Respondent 1:
Same as staﬀ
Respondent 2:
The redeﬁnition has had an insigniﬁcant eﬀect on my forecast.
Respondent 3:
This redeﬁnition had no inﬂuence on my core PCE projections.
Respondent 4:
N/A
Respondent 5:
Minimal. If number is needed, say 0.0 to 0.1 per year.
Respondent 6:
My adjustment is quite similar to that of the Greenbook.
Respondent 7:
No signiﬁcant change from the redeﬁnition.
Respondent 8:
I added 0.1 percentage point per year to my core PCE price inﬂation forecast relative to my June 2009
projection.
Respondent 9:
This is a small item, and it is not unusual for a benchmark revision to change historical values by larger
magnitudes. Indeed, despite this factor the overall benchmark revision for PCE inﬂation in Q1 was down.
Going forward, this change does not alter my view of an appropriate monetary policy, nor does it change my
view of our ability to achieve our goals. Accordingly I have not changed my forecast for 2010 and beyond
because of this deﬁnitional change. The change in my forecast for the second half of this year reﬂects the
downward revision for Q1 and generally low inﬂation readings over the summer.
Respondent 10:
Not applicable.
Respondent 11:
N/A
Respondent 12:
Because our inﬂation forecasts are based on movements in trimmed-mean PCE inﬂation and because “food
away from home” has typically been included in trimmed-mean inﬂation, the impact of the BEA’s revisions
on our view of the inﬂation outlook has been negligible.
Respondent 13:

Authorized for Public Release – 26 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

We were aware of the redeﬁnition of core PCE in June and would agree with the Board staﬀ that all else
equal, it “raises” core inﬂation by around 0.1 pp. We should note that in terms of our short-term forecast the
redeﬁnition is dominated by our uncertainty over the eﬀect of the extraordinary amount of slack on inﬂation.
Further, since we assume in our longer-run projections that core inﬂation is equal to total inﬂation and this
long-run rate is pinned down by the FOMC’s inﬂation objective, it would have no eﬀect on our forecasts
more than two years out.
Respondent 14:
BEA’s redeﬁnition of core PCE inﬂation does not materially aﬀect the contours of our inﬂation forecast.
Respondent 15:
N/A
Respondent 16:
In light of the historical diﬀerential, I have adjusted my core PCE projections upward (relative to what the
projections would be under the old deﬁnition of core inﬂation) by 0.1 percentage point per year.
Respondent 17:
same as staﬀ

Authorized for Public Release – 27 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Forecast Narratives (continued)

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

forecast and the Greenbook.
Respondent 1:
I continue to be moderately more pessimistic on job creation, with concomitant eﬀects on some other vari
ables.
Respondent 2:
My inﬂation forecast is less inﬂuenced by the degree of resource utilization in the economy and so I project a
higher pace of inﬂation over 2010-2012 than does the Greenbook. Given the strength of economic growth in
my forecast and the higher inﬂation path, the policy path is less accommodative over the forecast horizon.
Respondent 3:
My baseline trajectory for unemployment and inﬂation conforms reasonably well to the Greenbook baseline.
However, I do project a more restrained pace of real GDP growth and less potential output growth over the
forecast horizon than the Greenbook.
Respondent 4:
N/A
Respondent 5:
Moderately more pessimistic about 2010, due to concerns about the labor market and bank credit. A jobless
recovery will undercut household spending growth. More generally, ﬁnal demand has not clearly stabilized
yet. See some upside risk in global commodity prices, which could slow US growth and increase US inﬂation.
Respondent 6:
Following the relatively strong third quarter, my forecast includes two consecutive quarters of declining real
GDP growth before returning to above trend growth throughout the balance of the forecast period. Overall,
output growth is considerably weaker in 2010 and moderately so in 2011.
Despite a moderately weaker growth proﬁle, my outlook entails more core PCE inﬂation in the second
half of 2010 and beyond, primarily due to an assumption that inﬂation expectations remain anchored near
current levels in the neighborhood of 2%. Additionally, the recession has generated a substantial amount of
worker dislocation, pushing up the quantity of unemployment that is considered “natural” thereby shrinking
the unemployment gap. Moreover, my forecast is likely to imply a smaller reaction of inﬂation to changes
in the gap.
Respondent 7:
Compared to the 70% conﬁdence intervals indicated for the Greenbook forecasts, the diﬀerences between
the point estimates in the Greenbook baseline forecasts and my forecasts are not diﬀerent in any meaningful
statistical sense. However the time path of my projections does diﬀer from the Greenbook baseline, in that I
see stronger near-term growth than that in the Greenbook baseline with real growth subsequently tapering
oﬀ in 2011 and 2012. This contrasts with the increasing real growth rates that the Greenbook shows in those
years. While my near-term inﬂation outlook is essentially the same as that in the Greenbook forecast, I see
inﬂation increasing in an intermediate period before returning to the rate that I believe is consistent with
appropriate monetary policy. In contrast, the Greenbook forecast sees inﬂation declining and persisting at
very low rates for “an extended period”.
Respondent 8:

Authorized for Public Release – 28 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

My forecast is very similar to the Greenbook forecast.
Respondent 9:
I believe that under an appropriate monetary policy the public’s inﬂation expectations would be well an
chored, and the inﬂation path would be higher than in the Greenbook. In order to keep inﬂation on target,
I believe the federal funds rate will be on an upward trajectory by the end of 2010.
Respondent 10:
The forecasts are roughly congruent.
Respondent 11:
We do not see inﬂation falling as low as the Greenbook does. One reason is that our current output gap is
smaller than the Greenbook’s because we did not change our view of historical structural productivity. In
addition, we see longer-run inﬂation expectations as being consistent with a higher level of actual inﬂation
in the out-years of the projection period.
Respondent 12:
The Greenbook baseline forecast underestimates the continuing drag on the economy from damage to the
ﬁnancial sector, uncertainty created by new economic and regulatory initiatives, and the deterioration in
household cash ﬂow. It does not take into account inducements deriving from regulatory and taxation initia
tives for corporations and ﬁnancial investors to invest in more promising markets abroad, at the expense of
job creation and CAPEX at home. (Although these eﬀects are not quantiﬁable, they are palpable.) It also
assumes a too-rapid response of the unemployment rate to reductions in the output gap when these reduc
tions ﬁnally do take hold, and underestimates the upward pressure on commodity prices due to a stronger
world economy.
Respondent 13:
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 late 2011 under the assumption of well-anchored
inﬂation expectations.
Respondent 14:
The diﬀerences to the real outlook are very minor. As concerns inﬂation, 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 15:
N/A
Respondent 16:
The key diﬀerences in our forecasts are in the growth outlook for 2010 and the path of monetary policy.
I expect growth in 2010 to be modestly weaker than Greenbook does, reﬂecting my concerns about the
headwinds facing the economy. I also believe that policy will need to be tightened more aggressively than
in Greenbook. Holding rates so low through 2011 will invite asset imbalances and lead to a problematic rise
in inﬂation expectations and, eventually, inﬂation.
Respondent 17:
slightly higher growth in Q4 2009 and 2010, taking more of a signal from recent positive surprises.

Authorized for Public Release – 29 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Forecast Narratives (continued)

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

previous quarter’s projections.
Respondent 1:
Short-term forecast aﬀected by stronger than expected activity in Q3.
Respondent 2:
The key factors causing me to revise my near-term projection have been the weaker-than-expected labor
market data and stronger-than-expected growth data. However the basic shape of my forecast and the story
underlying it have not materially changed.
Respondent 3:
N/A
Respondent 4:
N/A
Respondent 5:
Financial markets continued to improve, as did housing and global activity, suggesting a better near-term
outlook. Consumer spending has held up so far. Medium-term outlook is weakened on net by poor labor
market performance and the increasing likelihood of a jobless recovery. Bank credit has not revived even as
other credit markets have improved.
Respondent 6:
The incoming data led to a much stronger third quarter than we had anticipated, indicating an end to the
recession. Nevertheless, many of the underlying weaknesses that I had previously identiﬁed remain, which
should produce a weaker recovery relative to historical norms. In particular, I expect a deceleration in real
output going into 2010 before we see near- or above-trend growth. I have also dampened my near-term
inﬂation outlook since the June submission due to lower-than-expected observed price increases.
Respondent 7:
Recent measures of economic activity appear to be evolving as I had expected in my projections from last
quarter, hence I have not revised my projected path of real output. My forecasts for the unemployment rate
are unchanged in the near term, but I have revised my out-year (2011) forecast down. I have revised my
forecast for headline PCE inﬂation in 2009 upward and for Core PCE inﬂation in 2009 downward, given the
available data through the ﬁrst three quarters, but my inﬂation forecasts (headline and Core PCE) for 2010
and beyond are unchanged.
Respondent 8:
Since June, economic data have come in consistently better than I anticipated, and ﬁnancial conditions have
improved considerably. These developments have caused me to raise my forecast for real GDP growth in
2009 and 2010 and to lower my forecast for the unemployment rate correspondingly. Recent core inﬂation
data have been a touch lower than expected, but this is balanced by a lower forecasted rate of unemployment
in 2010 and thereafter. On net, these inﬂuences oﬀset and my forecast for core PCE inﬂation is little changed
from my June projection. The lower projected path for commodity prices has caused me to lower somewhat
my forecast for overall PCE price inﬂation.
Respondent 9:
We have raised our forecast for real growth in response to positive news on consumer spending, housing
starts and home sales, manufacturing activity, initial unemployment claims, equity prices, foreign economic
activity, and corporate bond yields. The change in the inﬂation forecast for the second half of this year

Authorized for Public Release – 30 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

reﬂects the downward revision for Q1 and generally low inﬂation readings over the summer.
Respondent 10:
Not applicable.
Respondent 11:
Our revisions have mainly been to 2009:H2 and 2010:H1, and reﬂect the somewhat better- than-anticipated
incoming data.
Respondent 12:
The near-term outlook has signiﬁcantly improved due to the stabilization of inventory investment and con
sumer demand, the eﬀects of ﬁscal stimulus and tax incentives, and a strengthening of demand for U.S.
exports. These inﬂuences have so far more than oﬀset the deleterious eﬀects of increased policy uncertainty.
Respondent 13:
In June we judged it likely that the US economy would start a sluggish recovery in the second half of 2009
with unemployment peaking at 10.5%. Incoming expenditure data and improved ﬁnancial markets conditions
has been led us to upgrade our near term GDP forecast. While there are some tentative signs of stabiliza
tion in the labor market and overall unemployment has increased less quickly than our June projection, the
employment levels of prime age workers continue to drop. The fall of close to 5 percentage points in the
employment to population ratio of prime age workers (0.9 of which occurred since May) is unprecedented
in the post-war period. Given this weakness in a crucial area of the labor market, we assess that much
of the improvement in our near term forecast since June is due to support from the extraordinary set of
government policies used to prevent a deeper downturn rather than underlying strength. Thus, once the
downward revision to GDP in annual NIPA revisions is taken into account, we have not materially increased
our forecast for the level of GDP at the end of 2011. House prices have also surprised us to the upside but
again we attribute much of this to government policy rather than a signiﬁcant improvement in the underlying
fundamentals.
Core inﬂation data (including revisions) has surprised to the downside since June. Much of this surprise
was in non-market priced services and thus we ignored it. On the other hand, core goods inﬂation con
tinues to surprise on the upside and core service inﬂation (excluding the non-housing non market prices)
continues to surprise on the downside. The diﬀering persistence of the core service and core goods inﬂation
has led us to reduce our inﬂation projection along with the large increase in slack amongst prime age workers.
The downside risks to our central scenario projection have decreased considerably since June. The source
of this risk mitigation is continued evidence that the wide range of government policy actions have gained
traction in reversing the adverse feedback loop of the September 2008 to March 2009 period. Further, we
have increased the upside risk from productivity growth remaining above our assumption.
Since long-term inﬂation expectations have remained stable since June we have decreased some of the upside
risks to inﬂation in the near term from an unmooring of inﬂation expectations. The “slope of the Phillips
curve” is diﬃcult to measure precisely. Our modal projection is mainly based on a model that uses the prime
age male unemployment rate to measure slack and currently assumes the curve is very ﬂat. Hence there is
an increased risk that if the curve is steeper, inﬂation will be well below our forecast.
In June the policy assumption underlying our central projection was a renormalization of the policy rate
starting in 2011 along with no substantive changes in the balance sheet or LSAP. We have made no changes
to these assumptions.

Authorized for Public Release – 31 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Respondent 14:
The pace of economic activity in the second half of this year appears to be somewhat faster than previously
thought. However, labor market conditions have deteriorated more than we were anticipating. Overall,
changes to both the real and the inﬂation outlook are minor.
Respondent 15:
N/A
Respondent 16:
The only sizable change to my forecast is in the projection of GDP growth for 2009. This change is entirely
due to data for the second half of 2009, especially the third quarter, coming in stronger than anticipated
back in June.
Respondent 17:
incoming data have been stronger than expected and ﬁnancial conditions have improved faster than I ex
pected in June, so my projection of output going forward is somewhat higher, but the basic contours haven’t
changed. Despite the stronger output, my projection for the unemployment rate is very similar, inﬂation
expectations have been stable, and unit labor costs have been very soft; together with a fairly ﬂat Phillips
curve, these factors give me essentially the same projection for subdued inﬂation that I had in June.

Authorized for Public Release – 32 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Figure 2.A. Distribution of participants’ projections for the change in real GDP, 2009–12 and over the longer run
Number of participants

2009

14
12
10
8
6
4
2

November projections
June projections
June
November
Greenbook
Greenbook

-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
-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

Percent range
Number of participants

2010

14
12
10
8
6
4
2

June
November
Greenbook Greenbook

Percent range
Number of participants

2011

November
June
Greenbook Greenbook

14
12
10
8
6
4
2

Percent range
Number of participants

2012

June
Greenbook
November
Greenbook

14
12
10
8
6
4
2

Percent range
Number of participants

Longer Run

14
12
10
8
6
4
2

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

Authorized for Public Release – 33 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Figure 2.B. Distribution of participants’ projections for the unemployment rate, 2009–12 and over the longer run
Number of participants

2009

November and June
Greenbooks

November projections
June projections

14
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- 9.2- 9.4- 9.6- 9.8- 10.0-10.2-10.4-10.6
4.5 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 9.5 9.7 9.9 10.1 10.3 10.5 10.7

Percent range
Number of participants

2010

14
12
10
8
6
4
2

November
June
Greenbook Greenbook

Percent range
Number of participants

2011

14
12
10
8
6
4
2

June
November
Greenbook Greenbook

Percent range
Number of participants

2012

14
12
10
8
6
4
2

November and June
Greenbooks

Percent range
Number of participants

Longer Run

14
12
10
8
6
4
2

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

Authorized for Public Release – 34 of 36

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Figure 2.C. Distribution of participants’ projections for PCE inflation, 2009–12 and over the longer run
Number of participants

November
June
Greenbook Greenbook

2009
November projections
June projections

0.1
0.2

0.3
0.4

0.5
0.6

0.7
0.8

0.9
1.0

1.1
1.2

1.3
1.4

14
12
10
8
6
4
2
1.5
1.6

1.7
1.8

1.9
2.0

2.1
2.2

2.3
2.4

2.5
2.6

Percent range
Number of participants

2010

0.10.2

14
12
10
8
6
4
2

June
November
Greenbook Greenbook

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

2.32.4

2.5
2.6

Percent range

Number of participants

2011

0.10.2

14
12
10
8
6
4
2

November
June
Greenbook Greenbook

0.30.4

0.50.6

0.70.8

0.9-
1.0

1.11.2

1.31.4

1.51.6

1.71.8

1.92.0

2.12.2

2.32.4

2.5
2.6

Percent range

Number of participants

2012

0.1
0.2

14
12
10
8
6
4
2

November and June
Greenbooks

0.3
0.4

0.5
0.6

0.7
0.8

0.9
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

Percent range
Number of participants

Longer Run

0.1
0.2

0.3
0.4

14
12
10
8
6
4
2
0.5
0.6

0.7
0.8

0.9
1.0

1.1
1.2

1.3
1.4

1.5
1.6

1.7
1.8

1.9
2.0

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

Authorized for Public Release – 35 of 36

2.1
2.2

2.3
2.4

2.5
2.6

SEP: Compilation and Summary of Individual Economic Projections

November 3–4, 2009

Figure 2.D. Distribution of participants’ projections for core PCE inflation, 2009–12
Number of participants

November and June
Greenbooks

2009
November projections
June projections

0.1
0.2

0.3
0.4

0.5
0.6

0.7
0.8

0.9
1.0

1.1
1.2

1.3
1.4

1.5
1.6

14
12
10
8
6
4
2
1.7
1.8

1.9
2.0

2.1
2.2

2.3
2.4

2.5
2.6

Percent range
Number of participants

2010

0.1
0.2

June
Greenbook

0.3
0.4

0.5
0.6

0.7
0.8

14
12
10
8
6
4
2

November
Greenbook

0.9
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

Percent range
Number of participants

2011

0.1
0.2

14
12
10
8
6
4
2

June
November
Greenbook Greenbook

0.3
0.4

0.5
0.6

0.7
0.8

0.9
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

Percent range
Number of participants

2012

0.1
0.2

14
12
10
8
6
4
2

November
June
Greenbook Greenbook

0.3
0.4

0.5
0.6

0.7
0.8

0.9
1.0

1.1
1.2

1.3
1.4

1.5
1.6

1.7
1.8

1.9
2.0

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

Authorized for Public Release – 36 of 36

2.1
2.2

2.3
2.4

2.5
2.6

Full text of Federal Open Market Committee Meeting Minutes, Transcripts, and Other Documents : Meeting, November 3-4, 2009 : Summary of Economic Projections - Compilation and Summary of Individual Economic Projections

FRASER