28 September 2023

Federal Open Market Committee September 20, 2023: FOMC Projections materials, accessible version + Fed Beige Book - September 6, 2023

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Federal Open Market Committee

September 20, 2023: FOMC Projections materials, accessible version

Accessible version

For release at 2:00 p.m., EDT, September 20, 2023

Summary of Economic Projections

In conjunction with the Federal Open Market Committee (FOMC) meeting held on September 19-20, 2023, 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 2023 to 2026 and over the longer run. Each participant’s projections were based on information available at the time of the meeting, together with her or his 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. "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.

Table 1. Economic projections of Federal Reserve Board members and Federal Reserve Bank presidents, under their individual assumptions of projected appropriate monetary policy, September 2023

Percent

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VariableMedian1Central Tendency2Range3
2023202420252026Longer run2023202420252026Longer run2023202420252026Longer run
Change in real GDP2.11.51.81.81.81.9–2.21.2–1.81.6–2.01.7–2.01.7–2.01.8–2.60.4–2.51.4–2.51.6–2.51.6–2.5
June projection1.01.11.8 1.80.7–1.20.9–1.51.6–2.0 1.7–2.00.5–2.00.5–2.21.5–2.2 1.6–2.5
Unemployment rate3.84.14.14.04.03.7–3.93.9–4.43.9–4.33.8–4.33.8–4.33.7–4.03.7–4.53.7–4.73.7–4.53.5–4.3
June projection4.14.54.5 4.04.0–4.34.3–4.64.3–4.6 3.8–4.33.9–4.54.0–5.03.8–4.9 3.5–4.4
PCE inflation3.32.52.22.02.03.2–3.42.3–2.72.0–2.32.0–2.22.03.1–3.82.1–3.52.0–2.92.0–2.72.0
June projection3.22.52.1 2.03.0–3.52.3–2.82.0–2.4 2.02.9–4.12.1–3.52.0–3.0 2.0
Core PCE inflation43.72.62.32.0 3.6–3.92.5–2.82.0–2.42.0–2.3 3.5–4.22.3–3.62.0–3.02.0–2.9 
June projection3.92.62.2  3.7–4.22.5–3.12.0–2.4  3.6–4.52.2–3.62.0–3.0  
Memo: Projected appropriate policy path
Federal funds rate5.65.13.92.92.55.4–5.64.6–5.43.4–4.92.5–4.12.5–3.35.4–5.64.4–6.12.6–5.62.4–4.92.4–3.8
June projection5.64.63.4 2.55.4–5.64.4–5.12.9–4.1 2.5–2.85.1–6.13.6–5.92.4–5.6 2.4–3.6

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 June projections were made in conjunction with the meeting of the Federal Open Market Committee on June 13-14, 2023. 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 June 13-14, 2023, meeting, and one participant did not submit such projections in conjunction with the September 19-20, 2023, 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, 2023–26 and over the longer run

Change in real GDP

Percent

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 201820192020202120222023202420252026Longer run
Actual2.32.6-1.55.70.9-----
Upper End of Range-----2.62.52.52.52.5
Upper End of Central Tendency-----2.21.82.02.02.0
Median-----2.11.51.81.81.8
Lower End of Central Tendency-----1.91.21.61.71.7
Lower End of Range-----1.80.41.41.61.6
Unemployment rate

Percent

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 201820192020202120222023202420252026Longer run
Actual3.83.66.84.23.6-----
Upper End of Range-----4.04.54.74.54.3
Upper End of Central Tendency-----3.94.44.34.34.3
Median-----3.84.14.14.04.0
Lower End of Central Tendency-----3.73.93.93.83.8
Lower End of Range-----3.73.73.73.73.5
PCE inflation

Percent

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 201820192020202120222023202420252026Longer run
Actual2.01.51.25.75.7-----
Upper End of Range-----3.83.52.92.72.0
Upper End of Central Tendency-----3.42.72.32.22.0
Median-----3.32.52.22.02.0
Lower End of Central Tendency-----3.22.32.02.02.0
Lower End of Range-----3.12.12.02.02.0
Core PCE inflation

Percent

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 201820192020202120222023202420252026
Actual2.01.61.44.74.8----
Upper End of Range-----4.23.63.02.9
Upper End of Central Tendency-----3.92.82.42.3
Median-----3.72.62.32.0
Lower End of Central Tendency-----3.62.52.02.0
Lower End of Range-----3.52.32.02.0

Note: Definitions of variables and other explanations are in the notes to table 1. The data for the actual values of the variables are annual.

Figure 2. FOMC participants' assessments of appropriate monetary policy: Midpoint of target range or target level for the federal funds rate

Number of participants with projected midpoint of target range or target level

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Midpoint of target range or target level (Percent)2023202420252026Longer run
6.250     
6.125 1   
6.000     
5.875     
5.750     
5.6251211  
5.500     
5.375741  
5.250     
5.125 41  
5.000     
4.875 412 
4.750     
4.625 311 
4.500     
4.375 2   
4.250     
4.125  32 
4.000     
3.875  21 
3.750    2
3.625  3  
3.500    1
3.375  3  
3.250    1
3.125  12 
3.000    1
2.875  12 
2.750     
2.625  152
2.500   18
2.375   33
2.250     

Note: Each shaded circle indicates the value (rounded to the nearest 1/8 percentage point) of an individual participant’s judgment of the midpoint of the appropriate target range for the federal funds rate or the appropriate target level for the federal funds rate at the end of the specified calendar year or over the longer run. One participant did not submit longer-run projections for the federal funds rate.

Figure 3.A. Distribution of participants’ projections for the change in real GDP, 2023–26 and over the longer run

Histograms, four panels.

Number of participants

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Percent Range2023202420252026Longer Run
June projectionsSeptember projectionsJune projectionsSeptember projectionsJune projectionsSeptember projectionsSeptember projectionsJune projectionsSeptember projections
0.2 - 0.3         
0.4 - 0.51 21     
0.6 - 0.73 1      
0.8 - 0.95 22     
1.0 - 1.15 6      
1.2 - 1.32 26     
1.4 - 1.51 2413   
1.6 - 1.7   284565
1.8 - 1.9 6 245878
2.0 - 2.1192146333
2.2 - 2.3 21 1 2  
2.4 - 2.5 1 1 1112
2.6 - 2.7 1       

Note: Definitions of variables and other explanations are in the notes to table 1.

Figure 3.B. Distribution of participants’ projections for the unemployment rate, 2023–26 and over the longer run

Histograms, four panels.

Number of participants

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Percent Range2023202420252026Longer Run
June projectionsSeptember projectionsJune projectionsSeptember projectionsJune projectionsSeptember projectionsSeptember projectionsJune projectionsSeptember projections
3.2 - 3.3         
3.4 - 3.5       22
3.6 - 3.7 8 1 12  
3.8 - 3.938 414433
4.0 - 4.1933727655
4.2 - 4.35 1224568
4.4 - 4.51 757221 
4.6 - 4.7  5 41   
4.8 - 4.9  1 2    
5.0 - 5.1  1      

Note: Definitions of variables and other explanations are in the notes to table 1.

Figure 3.C. Distribution of participants’ projections for PCE inflation, 2023–26 and over the longer run

Histograms, four panels.

Number of participants

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Percent Range2023202420252026Longer Run
June projectionsSeptember projectionsJune projectionsSeptember projectionsJune projectionsSeptember projectionsSeptember projectionsJune projectionsSeptember projections
1.7 - 1.8         
1.9 - 2.0    64111819
2.1 - 2.2  21887  
2.3 - 2.4  6716   
2.5 - 2.6  271    
2.7 - 2.8  531 1  
2.9 - 3.06   11   
3.1 - 3.2382      
3.3 - 3.428       
3.5 - 3.65211     
3.7 - 3.811       
3.9 - 4.0         
4.1 - 4.21        

Note: Definitions of variables and other explanations are in the notes to table 1.

Figure 3.D. Distribution of participants’ projections for core PCE inflation, 2023–26

Histograms, three panels.

Number of participants

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Percent Range2023202420252026
June projectionsSeptember projectionsJune projectionsSeptember projectionsJune projectionsSeptember projectionsSeptember projections
1.7 - 1.8       
1.9 - 2.0    5411
2.1 - 2.2  1 854
2.3 - 2.4  23293
2.5 - 2.6  781  
2.7 - 2.8  251  
2.9 - 3.0  22111
3.1 - 3.2  2    
3.3 - 3.4  1    
3.5 - 3.61811   
3.7 - 3.876     
3.9 - 4.054     
4.1 - 4.241     
4.3 - 4.4       
4.5 - 4.61      

Note: Definitions of variables and other explanations are in the notes to table 1.

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, 2023–26 and over the longer run

Histograms, four panels.

Number of participants

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Percent Range2023202420252026Longer Run
June projectionsSeptember projectionsJune projectionsSeptember projectionsJune projectionsSeptember projectionsSeptember projectionsJune projectionsSeptember projections
2.13 - 2.37         
2.38 - 2.62    1 41112
2.63 - 2.87    21531
2.88 - 3.12    11211
3.13 - 3.37    31211
3.38 - 3.62    33  1
3.63 - 3.87  1 23 12
3.88 - 4.12    121  
4.13 - 4.37  1 232  
4.38 - 4.62  62     
4.63 - 4.87  23111  
4.88 - 5.12  24112  
5.13 - 5.372 34 1   
5.38 - 5.6247 4 1   
5.63 - 5.879122111   
5.88 - 6.122 1      
6.13 - 6.371  1     

Note: Definitions of variables and other explanations are in the notes to table 1.

Figure 4.A. Uncertainty and risks in projections of GDP growth

Median projection and confidence interval based on historical forecast errors
Change in Real GDP

Percent

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 201820192020202120222023202420252026
Actual2.32.6-1.55.70.9----
Upper end of 70% Confidence Interval-----3.43.33.94.1
Median-----2.11.51.81.8
Lower End of 70% Confidence Interval-----0.8-0.3-0.3-0.5
FOMC participants' assessments of uncertainty and risks around their economic projections

Histograms, two panels.

Uncertainty about GDP growth

Number of participants

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 LowerBroadly SimilarHigher
September projections0514
June projections0414
Risks to GDP growth

Number of participants

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 Weighted to DownsideBroadly BalancedWeighted to Upside
September projections8101
June projections1071

Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the percent change in real gross domestic product (GDP) from the fourth quarter of the previous year to the fourth quarter of the year indicated. The confidence interval around the median projected values is assumed to be symmetric and is based on root mean squared errors of various private and government forecasts made over the previous 20 years; more information about these data is available in table 2. 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; these current assessments are summarized in the lower panels. Generally speaking, participants who judge the uncertainty about their projections as “broadly similar” to the average levels of the past 20 years would view the width of the confidence interval shown in the historical fan chart as largely consistent with their assessments of the uncertainty about their projections. Likewise, participants who judge the risks to their projections as “broadly balanced” would view the confidence interval around their projections as approximately symmetric. For definitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.”

Figure 4.B. Uncertainty and risks in projections of the unemployment rate

Median projection and confidence interval based on historical forecast errors
Unemployment rate

Percent

Make Full Screen
 201820192020202120222023202420252026
Actual3.83.66.84.23.6----
Upper end of 70% Confidence Interval-----4.35.466.1
Median-----3.84.14.14.0
Lower End of 70% Confidence Interval-----3.32.82.21.9
FOMC participants' assessments of uncertainty and risks around their economic projections

Histograms, two panels.

Uncertainty about the unemployment rate

Number of participants

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 LowerBroadly SimilarHigher
September projections1513
June projections0414
Risks to the unemployment rate

Number of participants

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 Weighted to DownsideBroadly BalancedWeighted to Upside
September projections0109
June projections0711

Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the average civilian unemployment rate in the fourth quarter of the year indicated. The confidence interval around the median projected values is assumed to be symmetric and is based on root mean squared errors of various private and government forecasts made over the previous 20 years; more information about these data is available in table 2. 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; these current assessments are summarized in the lower panels. Generally speaking, participants who judge the uncertainty about their projections as “broadly similar” to the average levels of the past 20 years would view the width of the confidence interval shown in the historical fan chart as largely consistent with their assessments of the uncertainty about their projections. Likewise, participants who judge the risks to their projections as “broadly balanced” would view the confidence interval around their projections as approximately symmetric. For definitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.”

Figure 4.C. Uncertainty and risks in projections of PCE inflation

Median projection and confidence interval based on historical forecast errors
PCE inflation

Percent

Make Full Screen
 201820192020202120222023202420252026
Actual2.01.51.25.75.7----
Upper end of 70% Confidence Interval-----4.34.343.7
Median-----3.32.52.22.0
Lower End of 70% Confidence Interval-----2.30.70.40.3
FOMC participants' assessments of uncertainty and risks around their economic projections

Histograms, four panels.

Uncertainty about PCE inflation

Number of participants

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 LowerBroadly SimilarHigher
September projections1216
June projections1116
Risks to PCE inflation

Number of participants

Make Full Screen
 Weighted to DownsideBroadly BalancedWeighted to Upside
September projections0514
June projections0612
Uncertainty about core PCE inflation

Number of participants

Make Full Screen
 LowerBroadly SimilarHigher
September projections1216
June projections1116
Risks to core PCE inflation

Number of participants

Make Full Screen
 Weighted to DownsideBroadly BalancedWeighted to Upside
September projections0514
June projections0513

Note: The blue and red lines in the top panel show actual values and median projected values, respectively, of the percent change in the price index for personal consumption expenditures (PCE) from the fourth quarter of the previous year to the fourth quarter of the year indicated. The confidence interval around the median projected values is assumed to be symmetric and is based on root mean squared errors of various private and government forecasts made over the previous 20 years; more information about these data is available in table 2. 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; these current assessments are summarized in the lower panels. Generally speaking, participants who judge the uncertainty about their projections as “broadly similar” to the average levels of the past 20 years would view the width of the confidence interval shown in the historical fan chart as largely consistent with their assessments of the uncertainty about their projections. Likewise, participants who judge the risks to their projections as “broadly balanced” would view the confidence interval around their projections as approximately symmetric. For definitions of uncertainty and risks in economic projections, see the box “Forecast Uncertainty.”

Figure 4.D. Diffusion indexes of participants’ uncertainty assessments

Diffusion index

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SEPChange in real GDPUnemployment ratePCE inflationCore PCE inflation
October 20070.760.530.350.06
January 20080.880.760.290.29
April 20080.820.710.590.41
June 20080.760.650.820.47
October 200810.940.650.71
January 2009110.880.88
April 2009110.820.82
June 20090.940.940.760.76
November 20090.940.820.760.82
January 20100.820.710.710.76
April 20100.710.760.710.65
June 20100.820.760.710.65
November 20100.890.830.720.72
January 20110.720.670.720.67
April 20110.590.650.710.59
June 20110.760.760.760.65
November 20110.940.820.650.59
January 20120.940.820.530.47
April 20120.760.760.470.35
June 20120.950.950.470.37
September 20120.890.890.370.32
December 20120.950.890.260.26
March 20130.630.630.160.16
June 20130.370.320.160.16
September 20130.240.240.120.12
December 20130.180.1800
March 20140.120.120.060.06
June 20140.190.120.120.12
September 20140.240.240.060.06
December 20140.060.120.240.12
March 20150.120.120.240.18
June 20150.180.120.180.06
September 20150.120.060.180.18
December 20150.120.060.120.12
March 2016000.120.06
June 20160.180.060.060
September 2016000.12-0.06
December 20160.350.290.240.18
March 20170.290.240.180.18
June 20170.12000
September 20170.12000
December 20170.120.1200
March 20180.070.0700
June 20180.070.070.070.07
September 20180.120.190.060.06
December 20180.180.290.060.06
March 20190.180.240.120.12
June 20190.350.470.180.18
September 20190.350.470.240.24
December 20190.240.240.120.12
June 20201111
September 2020110.940.94
December 20200.940.940.820.82
March 20210.830.890.890.89
June 20210.830.8911
September 20210.940.8911
December 20210.940.9411
March 20220.940.8811
June 202210.9411
September 20221111
December 20220.950.8911
March 202310.940.940.94
June 20230.780.780.830.83
September 20230.740.630.790.79

Note: For each SEP, participants provided responses to the question “Please indicate your judgment of the uncertainty attached to your projections relative to the levels of uncertainty over the past 20 years.” Each point in the diffusion indexes represents the number of participants who responded “Higher” minus the number who responded “Lower,” divided by the total number of participants. Figure excludes March 2020 when no projections were submitted.

Figure 4.E. Diffusion indexes of participants’ risk weightings

Diffusion index

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SEPChange in real GDPUnemployment ratePCE inflationCore PCE inflation
October 2007-0.760.710.470.41
January 2008-0.710.760.350.29
April 2008-0.760.710.470.41
June 2008-0.820.820.760.53
October 2008-0.820.88-0.29-0.18
January 2009-0.810.88-0.44-0.44
April 2009-0.650.71-0.24-0.24
June 2009-0.410.41-0.06-0.06
November 2009-0.060.180-0.06
January 2010-0.060.180.060.06
April 20100.180.0600
June 2010-0.530.47-0.18-0.18
November 2010-0.330.5-0.17-0.17
January 20110.110.110.060.06
April 2011-0.120.060.470.35
June 2011-0.650.530.290.24
November 2011-0.650.65-0.06-0.06
January 2012-0.650.5900
April 2012-0.470.530.180.12
June 2012-0.790.68-0.16-0.16
September 2012-0.740.68-0.05-0.05
December 2012-0.680.68-0.05-0.05
March 2013-0.420.32-0.11-0.11
June 2013-0.370.32-0.16-0.16
September 2013-0.470.24-0.24-0.24
December 2013-0.120.06-0.18-0.18
March 2014-0.120-0.25-0.25
June 2014-0.250.06-0.12-0.12
September 2014-0.18-0.06-0.24-0.24
December 2014-0.12-0.06-0.29-0.24
March 2015-0.240-0.41-0.41
June 2015-0.240.06-0.24-0.24
September 2015-0.410.29-0.47-0.47
December 2015-0.120-0.41-0.47
March 2016-0.470.12-0.65-0.59
June 2016-0.350.18-0.35-0.35
September 2016-0.180.06-0.24-0.24
December 20160.18-0.180.060.06
March 20170.18-0.240.180.18
June 20170.06-0.12-0.06-0.06
September 20170-0.06-0.19-0.19
December 20170.19-0.1900
March 20180.2-0.270.20.2
June 20180.07-0.070.070.07
September 20180.06-0.060.190.19
December 2018-0.12-0.060.060.06
March 2019-0.240.06-0.18-0.18
June 2019-0.820.71-0.53-0.53
September 2019-0.760.53-0.29-0.29
December 2019-0.530.47-0.35-0.35
June 2020-0.710.71-0.76-0.76
September 2020-0.650.65-0.59-0.59
December 2020-0.290.41-0.47-0.47
March 20210.06-0.060.220.22
June 20210.06-0.060.720.72
September 2021-0.220.060.720.72
December 2021-0.220.060.830.83
March 2022-0.560.511
June 2022-0.670.720.890.89
September 2022-0.890.950.890.89
December 2022-0.890.890.840.84
March 2023-0.940.890.610.61
June 2023-0.50.610.670.72
September 2023-0.370.470.740.74

Note: For each SEP, participants provided responses to the question “Please indicate your judgment of the risk weighting around your projections.” Each point in the diffusion indexes represents the number of participants who responded “Weighted to the Upside” minus the number who responded “Weighted to the Downside,” divided by the total number of participants. Figure excludes March 2020 when no projections were submitted.

Figure 5. Uncertainty and risks in projections of the federal funds rate

Median projection and confidence interval based on historical forecast errors
Federal Funds Rate

Percent

Make Full Screen
 201820192020202120222023202420252026
Actual2.41.60.10.14.4----
Upper end of 70% Confidence Interval-----6.16.86.15.6
Median-----5.65.13.92.9
Lower End of 70% Confidence Interval-----5.13.41.70.2

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.

Table 2. Average Historical Projection Error Ranges

Percentage points

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Variable2023202420252026
Change in real GDP1±1.3±1.8±2.1±2.3
Unemployment rate1±0.5±1.3±1.9±2.1
Total consumer prices2±1.0±1.8±1.8±1.7
Short-term interest rates3±0.5±1.7±2.2±2.7

Note: Error ranges shown are measured as plus or minus the root mean squared error of projections for 2003 through 2022 that were released in the fall 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,” Finance and Economics Discussion Series 2017-020 (Washington: Board of Governors of the Federal Reserve System, February), https://dx.doi.org/10.17016/FEDS.2017.020.

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

Forecast Uncertainty

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 1.7 to 4.3 percent in the current year, 1.2 to 4.8 percent in the second year, 0.9 to 5.1 percent in the third year, and 0.7 to 5.3 percent in the fourth year. The corresponding 70 percent confidence intervals for overall inflation would be 1.0 to 3.0 percent in the current year, 0.2 to 3.8 percent in the second and third years, and 0.3 to 3.7 percent in the fourth 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 endof-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.

Last Update: September 20, 2023


________________________________________________________________



Beige Book National Summary



This report was prepared at the Federal Reserve Bank of Kansas City based on information collected on or before August 28, 2023. This document summarizes comments received from contacts outside the Federal Reserve System and is not a commentary on the views of Federal Reserve officials.


Overall Economic Activity
Contacts from most Districts indicated economic growth was modest during July and August. Consumer spending on tourism was stronger than expected, surging during what most contacts considered the last stage of pent-up demand for leisure travel from the pandemic era. But other retail spending continued to slow, especially on non-essential items. Some Districts highlighted reports suggesting consumers may have exhausted their savings and are relying more on borrowing to support spending. New auto sales did expand in many Districts, but contacts noted this had more to do with better availability of inventory rather than increased consumer demand. Manufacturing contacts in several Districts also noted that supply chain delays improved, and that they were better able to meet existing orders. New orders were stable or declined in most Districts, and backlogs shortened as demand for manufactured goods waned. One sector where supply did not become more available was single-family housing. Nearly all Districts reported the inventory of homes for sale remained constrained. Accordingly, new construction activity picked up for single-family housing. But multiple Districts noted that construction of affordable housing units was increasingly challenged by higher financing costs and rising insurance premiums. Bankers from different Districts had mixed experiences with growth in loan demand. Most indicated that consumer loan balances rose, and some Districts reported higher delinquencies on consumer credit lines. Agriculture conditions were somewhat mixed, but reports of drought and higher input costs were widespread. Energy activity was mostly unchanged during the final months of the summer.

Labor Markets
Job growth was subdued across the nation. Though hiring slowed, most Districts indicated imbalances persisted in the labor market as the availability of skilled workers and the number of applicants remained constrained. Worker retention improved in several Districts, but only in certain sectors such as manufacturing and transportation. Many contacts suggested "the second half of the year will be different" when describing wage growth. Growth in labor cost pressures was elevated in most Districts, often exceeding expectations during the first half of the year. But nearly all Districts indicated businesses renewed their previously unfulfilled expectations that wage growth will slow broadly in the near term.

Prices
Most Districts reported price growth slowed overall, decelerating faster in manufacturing and consumer-goods sectors. However, contacts in several Districts highlighted sharp increases in property insurance costs during the past few months. Contacts in several Districts indicated input price growth slowed less than selling prices, as businesses struggled to pass along cost pressures. As a result, profit margins reportedly fell in several Districts.

Highlights by Federal Reserve District
Boston
Business activity expanded modestly on balance. New car inventories normalized further but used cars remained scarce. Home sales fell further, resulting in a disappointing spring and summer season. Concerning the outlook, fewer contacts mentioned a recession as a looming risk and pricing pressures were expected to ease further.

New York
Regional economic activity held steady through the summer. Labor market conditions generally remained solid, with steady wage growth. Consumer spending grew steadily, while manufacturing activity declined. Home sales remained constrained due to low inventory and rising mortgage rates. Inflationary pressures picked up slightly after easing much of the past year.

Philadelphia
Business activity continued to decline slightly during the current Beige Book period. Although manufacturers indicated an uptick in August, consumer spending declined overall as did nonmanufacturing activity. Labor availability improved further, and employment edged up once more. Wage growth and inflation continued to subside. Sentiment was somewhat divided, but expectations generally grew more positive.

Cleveland
Economic activity was generally flat in the Fourth District, though conditions shifted notably in some industries. While consumer spending and demand for manufactured goods softened, freight activity stabilized, and nonresidential construction activity increased. Contacts expected similar economic conditions to persist in the near term.

Richmond
The regional economy grew slightly in recent weeks. Consumer spending on retail and food service, as well as on travel and tourism, picked up modestly. Manufacturers noted a decrease in demand. Transportation volumes remained steady across freight modes. Residential real estate was constrained by limited inventory. Commercial real estate activity and lending declined. Employment increased moderately and price growth eased slightly.

Atlanta
Economic activity grew modestly. Labor markets improved, and wage pressures eased. Nonlabor costs moderated, on net. Retail sales were robust. New auto sales were strong. Domestic leisure travel slowed, while international and business travel rose. Housing demand was durable. Transportation activity slowed. Energy demand was strong. Agricultural conditions were mixed.

Chicago
Economic activity increased slightly. Employment increased moderately; business and consumer spending increased slightly; construction and real estate was flat; nonbusiness contacts saw little change in activity; and manufacturing decreased slightly. Prices and wages rose moderately, while financial conditions tightened moderately. Expectations for farm incomes in 2023 were little changed.

St. Louis
Economic conditions have remained unchanged since our previous report. Employers reported continued tight labor markets and easing wage growth. Businesses struggled to pass on price increases and reported continuing increases in price sensitivity and weaker demand for high-end goods.

Minneapolis
Regional economic activity crept up on balance. Employment grew slightly, with hiring activity remaining healthy. Wage pressures were flat, while job seekers prioritized work-life balance. Prices increased moderately; firms were finding it harder to pass on higher costs. Consumer spending rose and auto sales benefited from improved inventory. Manufacturing and real estate activity fell; farm conditions weakened.

Kansas City
Economic activity across the District was stable over the last two months. Manufacturing production and sales at service businesses improved due to a greater ability to meet existing orders, as delays along supply chains were resolved. Job growth remained flat, but wage growth continued to exceed historical norms and businesses' expectations. Contacts renewed expectations for slower wage growth ahead. Prices grew at a moderate pace.

Dallas
Modest expansion continued, though activity was mixed across sectors. Solid growth was seen in the nonfinancial services sector, while retail sales were flat and activity in the manufacturing, energy, and financial services sectors declined. Employment growth picked up slightly overall, and wage growth remained high. Price pressures remained elevated in the service sector. Outlooks were fairly stable, though uncertainty persists.

San Francisco
Economic activity strengthened slightly. Labor availability improved and wage pressures softened further. Price increases persisted, albeit at a slower pace. Retail sales rose slightly, on balance, and manufacturing activity was stable. Lending activity moderated in recent weeks. Local communities observed increased demand for support services, particularly in areas impacted by wildfires and other severe weather in Hawaii and California.

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Last Update: September 06, 2023
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