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Policy / ECONOMY

Fed Gloomier on Economic Forecast

Federal Reserve Chairman Ben Bernanke speaks during a news conference at the Federal Reserve Board in Washington, Wednesday, Dec. 12, 2012.(AP Photo/Manuel Balce Ceneta)

photo of Catherine Hollander
December 12, 2012

The Federal Reserve on Wednesday issued a slightly more pessimistic forecast for economic growth and a slightly less pessimistic one for unemployment in 2013.

The latest economic projections of the Fed’s policy-setting committee show an economy growing between 2.3 and 3 percent in 2013, a slight downgrade from its September forecast of 2.5 to 3 percent. 

On unemployment, the reverse happened: The central bank now expects an unemployment rate between 7.4 and 7.7 percent next year, a slight improvement from its September projection range of 7.6 to 7.9 percent. The forecast, however, doesn’t mark a significant improvement from the current unemployment rate of 7.7 percent.

 

The Fed launched a fresh round of asset purchases on Wednesday, a move sure to raise concerns of risking higher inflation, and indicated a willingness to keep interest rates low even as projections for inflation slightly surpass its long-run target of 2 percent. But the central bank slightly lowered its projections for inflation over the next three years in the economic forecasts and said that its longer-run expectation for inflation remained steady at 2 percent.

One of the big steps the Fed took in a separate policy statement on Wednesday was to change its guidance for how long it expects to keep the federal funds rate — its key policy lever — exceptionally low.

The central bank had based its guidance on the calendar and most recently said it expected to keep the rate low through mid-2015. On Wednesday, the Fed tied its forecast for the rate to economic conditions, but in the bank’s economic projections it was clear that the majority of the policy-setting Federal Open Market Committee still expects policy to be firmed in 2015.

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