Three takeaways from the Fed’s forecast

The print version of the Wall Street Journal provides a graphic showing that Fed policy makers have reduced key economic forecasts during their latest meeting in which the decided not to raise interest rates.

Three takeaways from the graphic:

  1. Growth is expected to slow over the next few years. After taking out inflation, the economy is expected to grow at roughly 2 percent a year.
  2. Inflation is expected to increase to 2 percent a year. Adding inflation to the real rate of GDP increases, yields an economic growth of 4 percent a year, but half of the growth is from rising prices rather than increasing output.
  3. The Fed expects growth to be lower than it projected in June, but is projecting higher employment. Expect to see reports of declining labor productivity, which may tap down wage pressure.