Minutes of the Federal Open Market Committee
March 19-20, 2019
In conjunction with the Federal Open Market Committee (FOMC) meeting held on March 19-20, 2019, meeting participants submitted their projections of the most likely outcomes for real gross domestic product (GDP) growth, the unemployment rate, and inflation for each year from 2019 to 2021 and over the longer run. Each participant's projections were based on information available at the time of the meeting, together with his or her assessment of appropriate monetary policy--including a path for the federal funds rate and its longer-run value--and assumptions about other factors likely to affect economic outcomes. The longer-run projections represent each participant's assessment of the value to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy.1 "Appropriate monetary policy" is defined as the future path of policy that each participant deems most likely to foster outcomes for economic activity and inflation that best satisfy his or her individual interpretation of the statutory mandate to promote maximum employment and price stability.
Participants who submitted longer-run projections generally expected that, under appropriate monetary policy, growth of real GDP in 2019 would run at or somewhat above their individual estimates of its longer-run rate. Most participants continued to expect real GDP growth to edge down over the projection horizon, with almost all participants projecting growth in 2021 to be at or below their estimates of its longer-run rate. All participants who submitted longer-run projections continued to expect that the unemployment rate would run at or below their estimates of its longer-run level through 2021. Almost all participants projected that inflation, as measured by the four-quarter percentage change in the price index for personal consumption expenditures (PCE), would increase slightly over the next two years, and most participants expected that it would be at or slightly above the Committee's 2 percent objective in 2020 and 2021. Compared with the Summary of Economic Projections (SEP) from December 2018, all participants marked down somewhat their projections for real GDP growth in 2019, and most revised down slightly their projections for total inflation in 2019. Table 1 and figure 1 provide summary statistics for the projections.
Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, under their individual assessments of projected appropriate monetary policy, March 2019
|2019||2020||2021||Longer run||2019||2020||2021||Longer run||2019||2020||2021||Longer run|
|Change in real GDP||2.1||1.9||1.8||1.9||1.9 - 2.2||1.8 - 2.0||1.7 - 2.0||1.8 - 2.0||1.6 - 2.4||1.7 - 2.2||1.5 - 2.2||1.7 - 2.2|
|December projection||2.3||2.0||1.8||1.9||2.3 - 2.5||1.8 - 2.0||1.5 - 2.0||1.8 - 2.0||2.0 - 2.7||1.5 - 2.2||1.4 - 2.1||1.7 - 2.2|
|Unemployment rate||3.7||3.8||3.9||4.3||3.6 - 3.8||3.6 - 3.9||3.7 - 4.1||4.1 - 4.5||3.5 - 4.0||3.4 - 4.1||3.4 - 4.2||4.0 - 4.6|
|December projection||3.5||3.6||3.8||4.4||3.5 - 3.7||3.5 - 3.8||3.6 - 3.9||4.2 - 4.5||3.4 - 4.0||3.4 - 4.3||3.4 - 4.2||4.0 - 4.6|
|PCE inflation||1.8||2.0||2.0||2.0||1.8 - 1.9||2.0 - 2.1||2.0 - 2.1||2.0||1.6 - 2.1||1.9 - 2.2||2.0 - 2.2||2.0|
|December projection||1.9||2.1||2.1||2.0||1.8 - 2.1||2.0 - 2.1||2.0 - 2.1||2.0||1.8 - 2.2||2.0 - 2.2||2.0 - 2.3||2.0|
|Core PCE inflation4||2.0||2.0||2.0||1.9 - 2.0||2.0 - 2.1||2.0 - 2.1||1.8 - 2.2||1.8 - 2.2||1.9 - 2.2|
|December projection||2.0||2.0||2.0||2.0 - 2.1||2.0 - 2.1||2.0 - 2.1||1.9 - 2.2||2.0 - 2.2||2.0 - 2.3|
|Memo: Projected appropriate policy path|
|Federal funds rate||2.4||2.6||2.6||2.8||2.4 - 2.6||2.4 - 2.9||2.4 - 2.9||2.5 - 3.0||2.4 - 2.9||2.4 - 3.4||2.4 - 3.6||2.5 - 3.5|
|December projection||2.9||3.1||3.1||2.8||2.6 - 3.1||2.9 - 3.4||2.6 - 3.1||2.5 - 3.0||2.4 - 3.1||2.4 - 3.6||2.4 - 3.6||2.5 - 3.5|
Note: Projections of change in real gross domestic product (GDP) and projections for both measures of inflation are percent changes from the fourth quarter of the previous year to the fourth quarter of the year indicated. PCE inflation and core PCE inflation are the percentage rates of change in, respectively, the price index for personal consumption expenditures (PCE) and the price index for PCE excluding food and energy. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. Each participant's projections are based on his or her assessment of appropriate monetary policy. Longer-run projections represent each participant's assessment of the rate to which each variable would be expected to converge under appropriate monetary policy and in the absence of further shocks to the economy. The projections for the federal funds rate are the value of the midpoint of the projected appropriate target range for the federal funds rate or the projected appropriate target level for the federal funds rate at the end of the specified calendar year or over the longer run. The December projections were made in conjunction with the meeting of the Federal Open Market Committee on December 18-19, 2018. One participant did not submit longer-run projections for the change in real GDP, the unemployment rate, or the federal funds rate in conjunction with the December 18-19, 2018, meeting, and one participant did not submit such projections in conjunction with the March 19-20, 2019, meeting.
1. For each period, the median is the middle projection when the projections are arranged from lowest to highest. When the number of projections is even, the median is the average of the two middle projections. Return to table
2. The central tendency excludes the three highest and three lowest projections for each variable in each year. Return to table
3. The range for a variable in a given year includes all participants' projections, from lowest to highest, for that variable in that year. Return to table
4. Longer-run projections for core PCE inflation are not collected. Return to table
Figure 1. Medians, central tendencies, and ranges of economic projections, 2019-21 and over the longer run
As shown in figure 2, most participants expected that the evolution of the economy, relative to their objectives of maximum employment and 2 percent inflation, would likely warrant keeping the federal funds rate at its current level through the end of 2019. The medians of participants' assessments of the appropriate level of the federal funds rate in 2020 and 2021 were close to the median assessment of its longer-run level. Compared with the December submissions, the median projections for the federal funds rate for the end of 2019, 2020, and 2021 were 50 basis points lower.
Figure 2. FOMC participants' assessments of appropriate monetary policy: Midpoint of target range or target level for the federal funds rate
A substantial majority of participants continued to view the uncertainty around their projections as broadly similar to the average of the past 20 years. While a majority of participants viewed the risks to the outlook as balanced, a couple more participants than in December viewed the risks to inflation as weighted to the downside.
The Outlook for Economic Activity
As shown in table 1, the median of participants' projections for the growth rate of real GDP in 2019, conditional on their individual assessments of appropriate monetary policy, was 2.1 percent. Most participants continued to expect GDP growth to slow throughout the projection horizon, with the median projection at 1.9 percent in 2020 and at 1.8 percent in 2021, a touch lower than the median estimate of its longer-run rate of 1.9 percent. Relative to the December SEP, the medians of the projections for real GDP growth in 2019 and 2020 were 0.2 percentage point and 0.1 percentage point lower, respectively. Most participants mentioned a recent patch of weaker data on domestic economic activity, and some pointed to a softer global growth outlook, as factors behind the downward revisions to their near-term growth estimates.
The median of projections for the unemployment rate in the fourth quarter of 2019 was 3.7 percent, about 1/2 percentage point below the median assessment of its longer-run level. The median projections for 2020 and 2021 were 3.8 percent and 3.9 percent, respectively. These median unemployment rates were a little higher than those from the December SEP. Nevertheless, most participants continued to project that the unemployment rate in 2021 would be below their estimates of its longer-run level. The median estimate of the longer-run rate of unemployment was 4.3 percent, which was slightly lower than in December.
Figures 3.A and 3.B show the distributions of participants' projections for real GDP growth and the unemployment rate from 2019 to 2021 and in the longer run. The distribution of individual projections for real GDP growth for 2019 shifted down relative to that in the December SEP, while the distributions for 2020, 2021, and the longer-run rate of GDP growth changed only slightly. The distributions of individual projections for the unemployment rate in 2019 and 2020 moved modestly higher relative to those in December, and the distribution in 2021 edged higher as well. Meanwhile, the distribution for the longer-run unemployment rate shifted down a touch.
Figure 3.A. Distribution of participants' projections for the change in real GDP, 2019-21 and over the longer run
Figure 3.B. Distribution of participants' projections for the unemployment rate, 2019-21 and over the longer run
The Outlook for Inflation
As shown in table 1, the medians of projections for total PCE price inflation were 1.8 percent in 2019 and 2.0 percent in both 2020 and 2021, each a touch lower than in the December SEP. The medians of projections for core PCE price inflation over the 2019-21 period were 2.0 percent, the same as in December.
Figures 3.C and 3.D provide information on the distributions of participants' views about the outlook for inflation. The distributions of projections for total PCE price inflation and core PCE price inflation in 2019, 2020, and 2021 shifted down slightly from the December SEP. Almost all participants expected that total and core PCE price inflation would be between 1.8 and 2.2 percent throughout the projection horizon.
Figure 3.C. Distribution of participants' projections for PCE inflation, 2019-21 and over the longer run
Appropriate Monetary Policy
Figure 3.E shows distributions of participants' judgments regarding the appropriate target--or midpoint of the target range--for the federal funds rate at the end of each year from 2019 to 2021 and over the longer run. The distributions for 2019 through 2021 shifted toward lower values. Compared with the projections prepared for the December SEP, the median federal funds rate was 50 basis points lower each year over the 2019-21 period. At the end of 2019, the median of federal funds rate projections was 2.38 percent, consistent with no rate increases over the course of 2019. Thereafter, the medians of the projections were 2.63 percent at the end of both 2020 and 2021, slightly lower than the median of the longer-run projections of the federal funds rate of 2.75 percent. Muted inflationary pressures and risk- management considerations were both cited as factors contributing to the downward revisions in participants' assessments of the appropriate path for the policy rate. The distribution of individual projections for the longer-run federal funds rate ticked down from December.
Figure 3.E. Distribution of participants' judgments of the midpoint of the appropriate target range for the federal funds rate or the appropriate target level for the federal funds rate, 2019–21 and over the longer run
Uncertainty and Risks
In assessing the appropriate path of the federal funds rate, FOMC participants take account of the range of possible economic outcomes, the likelihood of those outcomes, and the potential benefits and costs should they occur. As a reference, table 2 provides measures of forecast uncertainty--based on the forecast errors of various private and government forecasts over the past 20 years--for real GDP growth, the unemployment rate, and total PCE price inflation. Those measures are represented graphically in the "fan charts" shown in the top panels of figures 4.A, 4.B, and 4.C. The fan charts display the SEP medians for the three variables surrounded by symmetric confidence intervals derived from the forecast errors reported in table 2. If the degree of uncertainty attending these projections is similar to the typical magnitude of past forecast errors and the risks around the projections are broadly balanced, then future outcomes of these variables would have about a 70 percent probability of being within these confidence intervals. For all three variables, this measure of uncertainty is substantial and generally increases as the forecast horizon lengthens.
Table 2. Average historical projection error ranges
|Change in real GDP1||±1.4||±1.9||±1.9|
|Total consumer prices2||±0.9||±1.0||±1.1|
|Short-term interest rates3||±0.9||±2.0||±2.5|
NOTE: Error ranges shown are measured as plus or minus the root mean squared error of projections for 1999 through 2018 that were released in the spring by various private and government forecasters. As described in the box "Forecast Uncertainty," under certain assumptions, there is about a 70 percent probability that actual outcomes for real GDP, unemployment, consumer prices, and the federal funds rate will be in ranges implied by the average size of projection errors made in the past. For more information, see David Reifschneider and Peter Tulip (2017), "Gauging the Uncertainty of the Economic Outlook Using Historical Forecasting Errors: The Federal Reserve's Approach (PDF)," Finance and Economics Discussion Series 2017-020 (Washington: Board of Governors of the Federal Reserve System, February).
1. Definitions of variables are in the general note to table 1. Return to table
2. Measure is the overall consumer price index, the price measure that has been most widely used in government and private economic forecasts. Projections are percent changes on a fourth quarter to fourth quarter basis. Return to table
3. For Federal Reserve staff forecasts, measure is the federal funds rate. For other forecasts, measure is the rate on 3-month Treasury bills. Projection errors are calculated using average levels, in percent, in the fourth quarter. Return to table
Participants' assessments of the level of uncertainty surrounding their individual economic projections are shown in the bottom-left panels of figures 4.A, 4.B, and 4.C. A substantial majority of participants continued to view the degree of uncertainty attached to their economic projections for real GDP growth, unemployment, and inflation as broadly similar to the average of the past 20 years.2
Because the fan charts are constructed to be symmetric around the median projections, they do not reflect any asymmetries in the balance of risks that participants may see in their economic projections. Participants' assessments of the balance of risks to their current economic projections are shown in the bottom-right panels of figures 4.A, 4.B, and 4.C. A majority of participants judged the risks to the outlook for real GDP growth, the unemployment rate, total inflation, and core inflation as broadly balanced--in other words, as broadly consistent with a symmetric fan chart. The balance of risks to the projection for real GDP growth shifted a bit lower, with four participants assessing the risks as weighted to the downside and no participant seeing it weighted to the upside. The balance of risks to the projection for the unemployment rate moved a touch higher, with three participants judging the risks to the unemployment rate as weighted to the upside and two participants viewing the risks as weighted to the downside. In addition, the balance of risks to the inflation projections shifted down slightly relative to December. Two more participants than in December saw the risks to the inflation projections as weighted to the downside, and no participant judged the risks as weighted to the upside.
In discussing the uncertainty and risks surrounding their economic projections, trade tensions as well as developments abroad were mentioned by participants as sources of uncertainty or downside risk to the economic growth outlook. For the inflation outlook, the effect of trade restrictions was cited as an upside risk, while the concern that inflation expectations could be drifting below the FOMC's objective and the potential for a stronger dollar and weaker domestic demand to put downward pressure on inflation were viewed as downside risks. A number of participants mentioned that their assessments of risks remained roughly balanced in part as a result of their downward revisions to the appropriate federal funds rate path.
Participants' assessments of the appropriate future path of the federal funds rate are also subject to considerable uncertainty. Because the Committee adjusts the federal funds rate in response to actual and prospective developments over time in key economic variables such as real GDP growth, the unemployment rate, and inflation, uncertainty surrounding the projected path for the federal funds rate importantly reflects the uncertainties about the paths for these economic variables along with other factors. Figure 5 provides a graphical representation of this uncertainty, plotting the SEP median for the federal funds rate surrounded by confidence intervals derived from the results presented in table 2. As with the macroeconomic variables, the forecast uncertainty surrounding the appropriate path of the federal funds rate is substantial and increases for longer horizons.
Note: The blue and red lines are based on actual values and median projected values, respectively, of the Committee’s target for the federal funds rate at the end of the year indicated. The actual values are the midpoint of the target range; the median projected values are based on either the midpoint of the target range or the target level. The confidence interval around the median projected values is based on root mean squared errors of various private and government forecasts made over the previous 20 years. The confidence interval is not strictly consistent with the projections for the federal funds rate, primarily because these projections are not forecasts of the likeliest outcomes for the federal funds rate, but rather projections of participants' individual assessments of appropriate monetary policy. Still, historical forecast errors provide a broad sense of the uncertainty around the future path of the federal funds rate generated by the uncertainty about the macroeconomic variables as well as additional adjustments to monetary policy that may be appropriate to offset the effects of shocks to the economy.
The confidence interval is assumed to be symmetric except when it is truncated at zero--the bottom of the lowest target range for the federal funds rate that has been adopted in the past by the Committee. This truncation would not be intended to indicate the likelihood of the use of negative interest rates to provide additional monetary policy accommodation if doing so was judged appropriate. In such situations, the Committee could also employ other tools, including forward guidance and large-scale asset purchases, to provide additional accommodation. Because current conditions may differ from those that prevailed, on average, over the previous 20 years, the width and shape of the confidence interval estimated on the basis of the historical forecast errors may not reflect FOMC participants' current assessments of the uncertainty and risks around their projections.
*The confidence interval is derived from forecasts of the average level of short-term interest rates in the fourth quarter of the year indicated; more information about these data is available in table 2. The shaded area encompasses less than a 70 percent confidence interval if the confidence interval has been truncated at zero.
The economic projections provided by the members of the Board of Governors and the presidents of the Federal Reserve Banks inform discussions of monetary policy among policymakers and can aid public understanding of the basis for policy actions. Considerable uncertainty attends these projections, however. The economic and statistical models and relationships used to help produce economic forecasts are necessarily imperfect descriptions of the real world, and the future path of the economy can be affected by myriad unforeseen developments and events. Thus, in setting the stance of monetary policy, participants consider not only what appears to be the most likely economic outcome as embodied in their projections, but also the range of alternative possibilities, the likelihood of their occurring, and the potential costs to the economy should they occur.
Table 2 summarizes the average historical accuracy of a range of forecasts, including those reported in past Monetary Policy Reports and those prepared by the Federal Reserve Board's staff in advance of meetings of the Federal Open Market Committee (FOMC). The projection error ranges shown in the table illustrate the considerable uncertainty associated with economic forecasts. For example, suppose a participant projects that real gross domestic product (GDP) and total consumer prices will rise steadily at annual rates of, respectively, 3 percent and 2 percent. If the uncertainty attending those projections is similar to that experienced in the past and the risks around the projections are broadly balanced, the numbers reported in table 2 would imply a probability of about 70 percent that actual GDP would expand within a range of 1.6 to 4.4 percent in the current year and 1.1 to 4.9 percent in the second and third years. The corresponding 70 percent confidence intervals for overall inflation would be 1.1 to 2.9 percent in the current year, 1.0 to 3.0 percent in the second year, and 0.9 to 3.1 percent in the third year. Figures 4.A through 4.C illustrate these confidence bounds in "fan charts" that are symmetric and centered on the medians of FOMC participants' projections for GDP growth, the unemployment rate, and inflation. However, in some instances, the risks around the projections may not be symmetric. In particular, the unemployment rate cannot be negative; furthermore, the risks around a particular projection might be tilted to either the upside or the downside, in which case the corresponding fan chart would be asymmetrically positioned around the median projection.
Because current conditions may differ from those that prevailed, on average, over history, participants provide judgments as to whether the uncertainty attached to their projections of each economic variable is greater than, smaller than, or broadly similar to typical levels of forecast uncertainty seen in the past 20 years, as presented in table 2 and reflected in the widths of the confidence intervals shown in the top panels of figures 4.A through 4.C. Participants' current assessments of the uncertainty surrounding their projections are summarized in the bottom-left panels of those figures. Participants also provide judgments as to whether the risks to their projections are weighted to the upside, are weighted to the downside, or are broadly balanced. That is, while the symmetric historical fan charts shown in the top panels of figures 4.A through 4.C imply that the risks to participants' projections are balanced, participants may judge that there is a greater risk that a given variable will be above rather than below their projections. These judgments are summarized in the lower-right panels of figures 4.A through 4.C.
As with real activity and inflation, the outlook for the future path of the federal funds rate is subject to considerable uncertainty. This uncertainty arises primarily because each participant's assessment of the appropriate stance of monetary policy depends importantly on the evolution of real activity and inflation over time. If economic conditions evolve in an unexpected manner, then assessments of the appropriate setting of the federal funds rate would change from that point forward. The final line in table 2 shows the error ranges for forecasts of short-term interest rates. They suggest that the historical confidence intervals associated with projections of the federal funds rate are quite wide. It should be noted, however, that these confidence intervals are not strictly consistent with the projections for the federal funds rate, as these projections are not forecasts of the most likely quarterly outcomes but rather are projections of participants' individual assessments of appropriate monetary policy and are on an end-of-year basis. However, the forecast errors should provide a sense of the uncertainty around the future path of the federal funds rate generated by the uncertainty about the macroeconomic variables as well as additional adjustments to monetary policy that would be appropriate to offset the effects of shocks to the economy.
If at some point in the future the confidence interval around the federal funds rate were to extend below zero, it would be truncated at zero for purposes of the fan chart shown in figure 5; zero is the bottom of the lowest target range for the federal funds rate that has been adopted by the Committee in the past. This approach to the construction of the federal funds rate fan chart would be merely a convention; it would not have any implications for possible future policy decisions regarding the use of negative interest rates to provide additional monetary policy accommodation if doing so were appropriate. In such situations, the Committee could also employ other tools, including forward guidance and asset purchases, to provide additional accommodation.
While figures 4.A through 4.C provide information on the uncertainty around the economic projections, figure 1 provides information on the range of views across FOMC participants. A comparison of figure 1 with figures 4.A through 4.C shows that the dispersion of the projections across participants is much smaller than the average forecast errors over the past 20 years.
1. One participant did not submit longer-run projections for real GDP growth, the unemployment rate, or the federal funds rate. Return to text
2. At the end of this summary, the box "Forecast Uncertainty" discusses the sources and interpretation of uncertainty surrounding the economic forecasts and explains the approach used to assess the uncertainty and risks attending the participants' projections. Return to text