A forecast model from the New York Federal Reserve has turned decidedly more negative, and now points to “modestly negative” GDP growth in both 2022 and 2023.
The outlook for the US economy continues to darken and a June update of economic forecasts generated by the Federal Reserve Bank of New York’s dynamic stochastic general equilibrium model are bleak.The model’s outlook is considerably more pessimistic than it was in March, the authors of the latest update wrote in a post on the bank’s Liberty Street blog.Inflation is projected to remain elevated in 2022 at 3.
“This disinflation path is accompanied by a not-so-soft landing: the model predicts modestly negative GDP growth in both 2022 and 2023 .“According to the model, the probability of a soft landing—defined as four-quarter GDP growth staying positive over the next ten quarters—is only about 10 per cent.
“Conversely, the chances of a hard landing—defined to include at least one quarter in the next ten in which four-quarter GDP growth dips below -1 percent, as occurred during the 1990 recession—are about 80 per cent.”“The first is a continuation of the cost-push shocks that have hit the economy since early 2021, resulting in a higher projection for inflation and a somewhat lower projection for output growth.
“The second factor is tighter monetary policy in 2022 and 2023, with the federal funds rate following a much steeper path over the next year and a half than the one projected in March. This expected path for the policy rate is determined by a version of average inflation targeting , augmented with anticipated policy shocks and informed by expectations from the Survey of Primary Dealers.”
writes on monetary policy, equities, commodities and currencies. He is the overnight markets editor and writes Before the Bell.
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