The Federal Reserve’s latest Summary of Economic Projections, published Wednesday, delivered a message that was remarkably optimistic and fairly clear: Fed officials forecast that interest rates will stay above 5% through the end of next year, while unemployment will be lower and economic growth will be higher than previously expected.
“We’ve covered a lot of ground, and the full effects of our tightening have yet to be felt,” Powell told reporters. “Looking ahead, we’re in a position to proceed carefully in determining the extent of additional policy firming that may be appropriate.” The divide between what the dots showed and what Powell said left the broader message from the Fed somewhat muddled. Mohamed El-Erian, chief economic advisor at Allianz and president of Queens’ College at the University of Cambridge, worried aloud that the economic and policy signals from the press conference were coming across “as both confused and confusing.”
It might also have been a reflection of how the dot-plot median forecasts are forged. Every member of the Fed’s policy committee writes down a forecast, but not all of them vote on policy. Given that the Board of Governors, who always vote, skew more dovish than the regional bank presidents, who rotate through yearlong voting stints, the dot plot could be overstating the committee’s true path forward, noted Bill Adams, chief economist for Comerica Bank.
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