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FED Optimistic Forecasts...

( From The Examiner, CNN News, Washington Post, Seeking Alpha, USA Today )

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FED Forecasts

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Unemployment

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​​​At a news conference, Fed Chairman Ben Bernanke acknowledged the recent pickup in the labor market, with non-farm job growth totaling 236,000 in February and averaging about 205,000 a month the past four months. That's up from 154,000 a month in the July-October period. "Obviously, there has been some improvement," he said.



But, he added, "we do need to see a sustained improvement" before the Fed reduces or ends its asset purchases. "One month or two months doesn't cut it." Bernanke noted job gains have strengthened in recent years only to weaken again.

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​He maintained, however, that "the 2013 numbers are stronger than the 2012 numbers and the 2014 numbers are stronger than the 2013 numbers" despite that downgrade.

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By year's end, the Fed predicts a slightly brighter job outlook. It expects the unemployment rate to fall to 7.3% to 7.5%, vs. its December forecast of 7.4% to 7.7%.

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That was largely anticipated since the jobless rate in February already had dropped to 7.7% from 7.9%. One reason for the decline is the continuing retirement of Baby Boomers, leaving fewer people working or looking for work. Unemployment is projected to fall to 6% to 6.5% in 2015.

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GDP Growth​​



​​The Fed slightly lowered its economic growth forecast in 2013, saying it expects the economy to grow 2.3% to 2.8% this year vs. its December projection of 2.3% to 3%.

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When asked why "the forecast for 2013 and 2014, the growth forecast, is downgraded," Federal Reserve Chairman Ben Bernanke said

​ "I suspect that the fiscal issues may be part of that."

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The Fed said the economy has returned to a moderate pace of growth after "a pause" late last year. Economic growth slowed to just a tenth of a percentage point in the fourth quarter, but many economists expect an annual growth rate of 2% to 3% in the first quarter. Retail sales and business investment have beaten estimates of late, and the housing market has continued an encouraging rebound.





Inflation

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Inflation is expected to remain tame, at 1.3% to 1.7% this year and 2% or lower through 2015, the Fed's statement said.





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Despite signs of an improving economy, the Federal Reserve in their last statement said it will continue to pursue an easy-money policy aimed at holding down long-term interest rates and stimulating growth.



In a statement after a two-day meeting, the Fed said it will keep buying $85 billion a month in Treasury bonds and mortgage-backed securities until the labor market improves substantially, echoing its statements since last fall.



​​T he leaders of the central bank also released their forecasts for levels of economic growth, unemployment and inflation they expect to see over the coming three years. Those numbers, offer a glimpse of how much juice they believe the recovery has in it. Lately, most economic data has looked stronger, even as federal budget cuts threaten to hold back growth as 2013 progresses.



The big question is whether Fed officials can get it right after years in which they have regularly predicted a stronger economy than the one that materialized. In January 2011, Fed officials predicted that GDP would grow around 3.7 percent that year. It clocked in at 2 percent. In January 2012, they anticipated growth of about 2.5 percent. We ended up with 1.6 percent.



Let s review in details their current forecast...​​



The Optimistic FED



​​The big question is whether Fed officials can get it right after years in which they have regularly predicted a stronger economy than the one that materialized. In January 2011, Fed officials predicted that GDP would grow around 3.7 percent that year. It clocked in at 2 percent. In January 2012, they anticipated growth of about 2.5 percent. We ended up with 1.6 percent.



As shown by the graph below, we had constantly a very optimistic FED in terms of growth forecast for the past 3 years. What the graph shows, is that the projections have been revised downward regularly...​​