Fed Tries to Paint Rosy Picture in Staying Course Even Amid Lowered GDP Expectations

Despite what seem to be good day-bad day/good month-bad month scenarios seeming to be ever-present in markets and conditions through much of 2011, the Federal Reserve noted it has seen economic growth strengthen in the third-quarter. As such, it is continuing its plans on rates and Treasury purchases.

The Fed’s Federal Open Market Committee (FOMC) emerged from its two-day economic policy meeting to announce it would hold the target range for the federal funds rate between 0% and ¼% and would also continue reinvesting in Treasury securities. The FOMC announced conditions improved notably in most areas, including inflation and household spending, with employment rates being a glaring exception. Additionally, the FOMC limited its concerns to continued growth acceleration to one sentence that revolved around “significant downside risks [from] strains in global financial markets.”

However, in a statement unrelated to the FOMC rates/Treasuries announcement, the Fed illustrated more of a mixed-bag with its updated economic projections. On one hand, the Fed anticipated accelerating growth in each of the next two calendar years. However, said projections all are at weaker levels then they predicted just in June:
  • Projected changes in GDP 2011: +1.6 to 1.7 (previous projection 2.7 to 2.9)
  • Projected changes in GDP 2012: +2.5 to 2.9 (previous 3.3 to 3.7)
  • Projected changes in GDP 2013: +3 to 3.5 (previous 3.5 to 4.2).
Brian Shappell, NACM staff writer

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