The Economy and Monetary Policy Gearing for the Future in Risk Management September 19, 2014 Luke A. Tilley
* The views expressed today are my own and not necessarily those of the Federal Reserve Bank of Philadelphia or the Federal Reserve System.
Contributions to GDP Growth 6 Government Investment
Net Exports Consumption
0.3
4
Percent (%)
2.6 2 1.7 0
-0.4
-2
-4 2012 Source: Bureau of Economic Analysis via Haver Analytics Last Point Plotted: 2014:Q2
2013
2014
U.S. Monthly Job Growth 400 350
Thousands
300
250 200 150 100 50 0
2011 Jan.-Aug. = 165
2012 Jan.-Aug. = 179
Source: Bureau of Labor Statistics via Haver Analytics Last Point Plotted: August 2014
2013 Jan.-Aug. = 197
2014 Jan.-Aug. = 215
U.S. Unemployment Rates 20
U6 = U3 + all under employed and discouraged workers
Percent (%)
15
12.0 10
6.1
5
U3 – Official Unemployment Rate
0 '00
'03
Source: Bureau of Labor Statistics via Haver Last Point Plotted: August 2014
'06
'09
'12
Inflation and Core Inflation
% Change Year-over-year
6
4
PCE Price Index
2
0 Core PCE Price Index -2 '06
'08
Source: Bureau of Economic Analysis via Haver Last Point Plotted: July 2014
'10
'12
'14
FOMC Forecast - Real GDP Growth
Source: FOMC Summary of Economic Projections – Sept. 17, 2014
FOMC Forecast – Unemployment
Source: FOMC Summary of Economic Projections – Sept. 17, 2014
FOMC Forecast - Inflation
Source: FOMC Summary of Economic Projections – Sept. 17, 2014
Recent Monetary Policy Action Asset Purchases (“QE”) • In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions since the inception of the current asset purchase program, the Committee decided to make a further measured reduction in the pace of its asset purchases. • Now $15 billion per month.
Federal Funds Rate • Target stays at 0%-0.25% • The Committee continues to anticipate…that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. Source: FOMC Statement – Sept. 17, 2014
Appropriate Pace of Policy Firming Midpoint of target range or target level for the federal funds rate
Source: Overview of FOMC Participants’ Assessments of Appropriate Monetary Policy, Sept. 17, 2014
Treasury Yield Curves – Post “Great Recession” 5
3rd Quarter of each year shown except 2014
% Yield
4 2010
3
2011 2012
2
2013 2014Q2
1 0 0
5
10
15 20 Term (years)
Source: Board of Governors via Haver Analytics
25
30
35
Private Market 10-Year Treasury Yield Forecasts 6 SPF
BCFF
CBO
Percent (%)
5 4 3 2 1 0 2014
2015
2016
2017
2018
Source: Congressional Budget Office (CBO) The Budget & Economic Outlook – Feb. 2014; Blue Chip’s Financial Forecast (BCFF) –Mar. 2014; Survey of Professional Forecasters (SPF) – 2014:Q3
Luke A. Tilley, Ph.D. Officer and Economic Advisor luke.tilley@phil.frb.org