Fed estimates should show shaky confidence in weak economy – 9/21/2022

By Ann Saphir and Howard Schneider

WASHINGTON (Reuters) – How much Federal Reserve officials believe in the notion of a “soft landing” as they take drastic measures to quell the highest rate of inflation in 40 years remains to be seen. on Wednesday when the US central bank releases new macroeconomic forecasts.

The forecasts of 19 planners – to be published with the announcement of the third increase of the increase of the rate of 75 basis of the Fed – are unlikely to influence a big jump of unemployment or economic slowdown.

These are the results of the last time the Fed, under the leadership of Paul Volcker, fought high interest rates in the 1980s.

Although the new quarterly summary of the opinion of monetary policymakers appears to release a “hard” Volcker rate, it is widely expected to point to higher unemployment and a slowdown of economic growth next year. That, at least in relation to a popular benchmark measure, could signal a decline of some kind.

That indicator — called Sahm’s Rule, named after former Fed chair Claudia Sahm, who discovered it and developed it — says that the U.S. economy typically behaves when the rate rises. The three-month moving average of the unemployment rate was 0.5 percent above the three-month low over the previous 12 months. That low is currently around 3.56%.

Analysts polled by Reuters expect the unemployment rate to rise to 4.1% in the second quarter of 2023 and to 4.3% in the fourth quarter – below the 14.7% found in the crisis. disease or the height of 10, 8% during the Volcker recession. , but high enough to meet the Sahm Rule test.

Historically, when the unemployment rate rises by 0.5 percent, it continues to rise by 1 or 2 points, if not more.

Policymakers’ outlook for the economy will depend on their views on the appropriate monetary policy setting, and their forecasts will be published on Wednesday as part of the Fed’s policy briefing. of economic forecasts, or SEPs.

PROCESSING AHEAD?

Wednesday’s forecasts will provide a read on how fast Fed officials think they are doing to ease inflation and the size of the economy.

In the views expressed in June, the increase remained above 2% of the Fed until 2024, although the pessimistic member of the Fomc did not expect the economy to return to the future areas. . Most expect GDP growth of between 1.3% and 2% for each of the next three years.

“The latest economic forecasts show the Fed’s tolerance for pain, with real GDP growth likely to be revised downward,” wrote EY Parthenon chief economist Gregory Daco, with adding that the forecast for next year will be higher than 4.5%.

Inflation forecasts, however, could remain close to those established in June, he said, amid a “duel of continued inflation and a serious stance by the Fed and the recovery perhaps”.

Leave a Comment

Your email address will not be published. Required fields are marked *