Wednesday, June 7, 2017

New York Fed Forecasts Quarterly Update

From the Federal Reserve Bank of New York's Liberty Street Economics blog, May 31:

The New York Fed DSGE Model Forecast—May 2017 
 This post presents our quarterly update of the economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium (DSGE) model. We describe very briefly our forecast and its change since February 2017. As usual, we wish to remind our readers that the DSGE model forecast is not an official New York Fed forecast, but only an input to the Research staff’s overall forecasting process. For more information about the model and variables discussed here, see our DSGE Model Q & A.

The table and charts below show the May model forecasts for 2017-20 alongside the forecasts produced in February. The May projections use quarterly macroeconomic data released through the first quarter of 2017, augmented with the FRBNY staff forecasts for GDP growth and core PCE inflation for the second quarter of 2017 and with available financial data through April 30, 2017....
...How did the forecasts change since February?

• The current GDP growth forecast is somewhat weaker than its February counterpart throughout the forecast horizon. For 2017 the change in the forecast primarily reflects slower-than-expected expansion in the first quarter. GDP is now expected to grow at 1.9 percent in 2017 (in Q4/Q4 terms) and accelerate only modestly in the following years.

• The lower forecast for GDP growth relative to February is mainly due to a lower projected path for productivity growth. This negative force is partly counteracted by low credit spreads between Baa corporate and Treasury securities, a trend that should support activity in the short and medium run.

• The core PCE inflation forecast is slightly higher than in February, which is not surprising in light of the decline in productivity. The uptick in core PCE in the first quarter of 2017 pushes the core inflation outlook up to 1.5 percent (Q4/Q4) in 2017. Inflation is projected to increase gradually to 1.7 percent (Q4/Q4) in 2020. ...