Fed Staffers Slightly Pessimistic About Economy's Curse

        By David Harrison
        Federal Reserve staffers in June were somewhat more pessimistic than central bank officials about the economic outlook, according to the staff's projections ahead of the Fed's June policy meeting.
        The staff forecasts were inadvertently posted online last month, the Fed said Friday. They serve as background information for policy makers as they decide how to set interest rates. For that reason, they tend to be closely guarded and are usually released with a five-year delay.
        In June, the staffers saw economic growth dropping from 2.38% in 2016 to 1.74% in 2020, a bleaker assessment than the officials' projections, which pegged growth at between 2.0% and 2.3% after 2017. They also saw inflation rising to 1.94% by 2020, lower than the central bank's target of 2%. Fed officials, on the other hand, project longer run inflation at 2%.
        The Fed has held its benchmark short-term interest rate--the federal-funds rate--in a range from zero to 0.25% since December 2008. Most officials have indicated they expect to start raising it this year, but they haven't decided when to start and how much to lift it by year end. The policy makers will hold a meeting next week and are widely expected to leave the rate unchanged.
        The staff in June projected an average federal-funds rate of 0.35% in the fourth quarter of 2015, rising to 1.26% in the fourth quarter of 2016 and 2.12% in the fourth quarter of 2017. By contrast, policy makers on the committee saw a higher median fed-funds rate of 0.625% at the end of this year, rising to 1.625% in 2016 and 2.875% in 2017.
        The staff projections suggest policy makers will raise rates just once this year, said Tara Sinclair, chief economist at Indeed.
        "If there isn't going to be a recession over the next five to 10 years, I think these forecasts are relatively pessimistic because they're predicting that even though we're kind of back in normal times, we're not seeing strong growth," said Ms. Sinclair. "That's a combination of lower expectations for productivity and labor force participation."
        Fed staff saw the unemployment rate leveling off at slightly above 5% in the longer term, a view that was roughly on par with the expectations of committee members.
        The Fed staff projections are relied on most by the board members, including Chairwoman Janet Yellen. The 12 regional Fed bank presidents have their own research staff.
        (END) Dow Jones Newswires

        July 24, 2015 14:10 ET (18:10 GMT)

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