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Washington - Ground-breaking economic projections from the
US Federal Reserve on Wednesday show a central bank braced for a painfully slow
recovery, suggesting the possibility of a new round of bond-buying remains
alive if growth were to flag.
But the forecasts also show a wider range of views at the
Fed than voting patterns at its policy meetings have shown, suggesting a vigorous
debate among policy makers in months to come.
For the first time, the quarterly forecasts include
projections from top policymakers at the US central bank for the path of the
federal funds rate, which show that 11 officials don't expect to need to hike
rates until 2014 at the earliest.
The new forecasts are the latest step in Fed chairperson Ben
Bernanke's long-running campaign to shine more light on the central bank's
deliberations.
Far from a public relations exercise, Bernanke and many
other economists believe that better understanding of policy makers' thinking
will better prepare financial markets for how the Fed will react to changes in
the US economy and make the central bank more effective.
The forecasts and projections contained the following
insights:
- Five officials see the first likely rate hike in 2014,
with four seeing it in 2015 and two not until 2016. Nevertheless, three see the
first rate hike as soon as the end of this calendar year and three see it in
2013, suggesting that any further round of bond-buying to boost growth will
face stiff opposition internally.
- The Fed lowered its "central tendency" growth
forecast for 2012 down to a range of 2.2% to 2.7% from a previous range of 2.5%
to 2.9%, bringing it closer to private forecasts. This pace of growth is likely
to do little to lower unemployment very quickly and leaves the recovery
susceptible to a shock, for example from Europe.
- The Fed's view of unemployment was a little less glum. It
nudged down its forecast for the US jobless rate to 8.2% to 8.5% from an 8.5%
to 8.7% range in 2012 - recognition that the unemployment rate has already hit
8.5%. But in the Fed's eyes, further progress will be grudging, leaving open
the possibility the Fed could buy more bonds to spur stronger growth. It anticipates
the jobless rate to remain in the 7.4% to 8.1% range in 2013.
- The Fed's longer-range projection for unemployment held steady in a range of 5.2% to 6%. The unemployment forecast, a proxy for the Fed's view of what constitutes full employment, has inched steadily up since the central bank began publishing the number in early 2009. At that time, policy makers thought they could push the jobless rate down to 4.8% to 5% without generating inflation. The shift in views indicates officials believe the recent recession has left lasting scars on the economy and caused a structurally higher level of unemployment.
