The Hypermind widget for 2015 NGDP growth Scott Sumner has on The Money Illusion’s landing page currently shows 3.2% for the year. The current reading on the PCE deflator is 1.37%. Since the average on the PCE has been about 1.2%, a rough, ballpark figure for 2015 RGDP would come in around 1.8% to 2%.
I certainly hope to end up eating my words. I hope that a little less than a year from now, once the final numbers are in, people will be coming back to my page to tell me how wrong I was, throw a few figurative rotten tomatoes, and laugh me out of the blog-o-sphere for making overly pessimistic, whack-o-doodle claims that nobody will ever take seriously again.
But I doubt that will happen. Take a look at the Fed statement.
Information received since the Federal Open Market Committee met in March suggests that economic growth slowed during the winter months, in part reflecting transitory factors. The pace of job gains moderated, and the unemployment rate remained steady. A range of labor market indicators suggests that underutilization of labor resources was little changed. Growth in household spending declined; households’ real incomes rose strongly, partly reflecting earlier declines in energy prices, and consumer sentiment remains high. Business fixed investment softened, the recovery in the housing sector remained slow, and exports declined. Inflation continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Although growth in output and employment slowed during the first quarter, the Committee continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the Committee judges consistent with its dual mandate. The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to remain near its recent low level in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of declines in energy and import prices dissipate. The Committee continues to monitor inflation developments closely.
A basic summary is that the slowdown was broad-based. The only thing that was up slightly was household income that partly reflected a decline in energy prices. Inflation is still below target.
And what are they doing about it? Bumpkis. One would think that if these conditions occurred while doing bumpkis, then perhaps doing more of it wouldn’t improve matters. Oil prices will take care of themselves and so will the rest – someday. Screw the target.
Actually, though, they haven’t been doing bumpkis. If they hadn’t been playing with that reverse repo, IoR for money-market funds, since November, Dimon wouldn’t have been grousing about a market liquidity problem, and perhaps the 1st quarter would have been better. The base is growing at a much slower pace than last year while people are still hoarding – and our friendly neighborhood FOMC’ers are determined to make the problem larger before they solve it.
The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.
They are telling us that they will raise the FF rate when they estimate that the 2% target will be approached in the medium term, not when it’s near – after they’ve told us in the opener it will do just that. On what data that assumption is based, I do not know. Their perennially erroneous forecasts or reality? We were supposed to get a boost from cheap gas. Maybe that happened while I wasn’t paying attention. Perhaps there’s a possibility that this erroneous assumption is built into their inflation estimates because nowhere I look can I find where the imaginary inflationary pressures are going to come from with most of the rest of the developed economies in the world experiencing deflationary pressures.
I just don’t know how much more of the missed forecasts, excuses for not doing one’s job and instead doing harm can go on before it is quite obvious that this statement and along with the previous ones are just one big game of rope-a-dope while the Committee does whatever it pleases.