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ECONOMY

Fed Lowers Growth Forecasts

Members of the Federal Reserve Board’s policy-setting committee cut their economic forecasts for 2012 when they met this week.

Federal Open Market Committee members expect the year to bring both slower growth and higher unemployment than they projected in April, the latest round of forecasts, released on Wednesday, reveal.

 

FOMC members' central-tendency expectation is for the gross domestic product to grow between 1.9 percent and 2.4 percent in 2012, down from an earlier forecast of 2.4 percent to 2.9 percent. Members also saw unemployment remaining at or above 8 percent in the most recent round of projections; earlier, they predicted it could fall to 7.8 percent this year. The members' predictions for unemployment over the longer run were unchanged at 5.2 percent to 6 percent.

The FOMC meeting followed two months of lackluster economic data. Nonfarm payrolls grew by less than 100,000 in April and May. Unemployment remains elevated at 8.2 percent. Fed Chairman Ben Bernanke, in his most recent appearance on the Hill, suggested that the bank is still exploring two possible reasons for the slowdown in job growth. One, that it may have been “exaggerated” by the winter’s unusually warm weather and issues related to seasonal adjustment in the data. The other, that some of the larger gains the economy experienced in late 2011 and early 2012 were part of a catch-up in employers’ hiring. If that’s the case, more rapid gains in economic activity will be necessary to boost labor-market growth, he said.

The Fed noted in a policy statement released earlier on Wednesday that the economy was still “expanding moderately,” but said it was “prepared to take further action as appropriate.” That FOMC members still see inflation remaining below the bank’s 2 percent target for the next few years as well as in the long run, as the forecasts could make it easier for the Fed to justify taking action to bring down unemployment, half of its dual mandate, without causing inflation, the other half, to skyrocket.

 

Also earlier on Wednesday, the Fed announced it would continue its program to extend the average maturity of securities in its portfolio through the end of the year. It had been set to expire in June.

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