US FED: Fed Worsens Projections For 2009 GDP, Inflation, Unemployment

Washington, February 18 - Members of the Federal Open Market Committee made significant, and more dire revisions to its 2009 forecast, downgrading expectations for both GDP and inflation while increasing expectations for unemployment, according to the Fed's January summary of economic projections released today.

Participants now expect GDP in 2009 to fall by 0.5% to 1.3%, much worse than the Fed's central tendency of -0.2% to 1.1% GDP growth. Participants anticipate a 'broad-based' decline in the first half of this year as consumer spending is dampened by a deteriorating labor markets, tight credit conditions, falling house prices and stock market losses. However, as in October, the Fed still sees some recovery in the second half of the year, though at a gradual pace.

Yahoo! BuzzLooking ahead, the Fed has a central tendency of 2.5% to 3.3% for 2010 GDP growth and 3.8% to 5.0% for GDP in 2011. Both ranges are higher than the forecasts made in October.

Projections for the unemployment rate in 2009 is for a central tendency between 8.5% and 8.8%, significantly higher than the 7.1% to 7.6% rate expected in October. This upward revision is no surprise given that unemployment rate was already 7.2% in December before the FOMC met, and earlier this month unemployment hit 7.6%.

The Fed's central tendency for unemployment in 2010 is 8.0% to 8.3%, and 6.7% to 7.5% for 2011. Both are more than one percentage point higher than forecasts made in October. FOMC members see the unemployment rate declining further after 2011, most expecting it to settle between 4.8% and 5.0% over time.

The Fed's January expectations for PCE inflation and core PCE were lower than those made in October. Headline PCE in 2009 is projected at between 0.3% and 1.0%, lower than the 1.3% to 2.0% projection in October. Central tendency expectations were 1.0% to 1.5% for 2010 PCE and 0.9% to 1.7% in 2011, both lower than projections made in October.

Core PCE, which excludes for food and energy, is expected to land somewhere between 0.9% and 1.1% in 2009, lower than the 1.5% to 2.0% range expected in October. Projections for core PCE in 2010 and 2011 are also lower than those made in October.