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Economy / ECONOMY

Fed Cuts GDP Forecast for 2012

Members of the Federal Reserve’s policy-setting committee cut their economic growth forecasts slightly for 2012, but kept their unemployment projections the same when they met this week.

Fed Board members and regional Fed presidents now expect GDP to rise by 1.7 percent to 2.0 percent this year, central-tendency forecasts released on Thursday show. In June, they predicted GDP would grow 1.9 percent to 2.4 percent in 2012. Longer-run expectations were unchanged at 2.3 percent to 2.5 percent.

On the unemployment rate, the FOMC’s central-tendency expectation was unchanged from June at 8.0 percent to 8.2 percent in 2012, and longer-run expectations also remained the same at 5.2 percent to 6.0 percent. Last month, Fed Chairman Ben Bernanke referred to labor market stagnation as a “grave concern.” Earlier on Thursday, the Fed announced a new round of bond-buying and pledged to employ its policy tools further if the labor market outlook doesn’t improve “substantially” in the coming months.

 

Fed officials forecast slightly higher inflation over the next few years. In 2012, they now expect PCE inflation of 1.7 percent to 1.8 percent, up from its June forecast of 1.2 percent to 1.7 percent. The longer-run forecast of 2.0 percent was unchanged.

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