Results

FOMC - Federal Open Market Committee

03/17/2021 | Press release | Archived content

Projection materials

March 17, 2021: FOMC Projections materials, accessible version

Accessible version

For release at 2:00 p.m., EDT, March 17, 2021

Summary of Economic Projections

In conjunction with the Federal Open Market Committee (FOMC) meeting held on March 16-17, 2021, 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 2021 to 2023 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, March 2021

Percent

Variable Median 1 Central Tendency 2 Range 3
2021 2022 2023 Longer run 2021 2022 2023 Longer run 2021 2022 2023 Longer run
Change in real GDP 6.5 3.3 2.2 1.8 5.8-6.6 3.0-3.8 2.0-2.5 1.8-2.0 5.0-7.3 2.5-4.4 1.7-2.6 1.6-2.2
December projection 4.2 3.2 2.4 1.8 3.7-5.0 3.0-3.5 2.2-2.7 1.7-2.0 0.5-5.5 2.5-4.0 2.0-3.5 1.6-2.2
Unemployment rate 4.5 3.9 3.5 4.0 4.2-4.7 3.6-4.0 3.2-3.8 3.8-4.3 4.0-5.5 3.2-4.2 3.0-4.0 3.5-4.5
December projection 5.0 4.2 3.7 4.1 4.7-5.4 3.8-4.6 3.5-4.3 3.9-4.3 4.0-6.8 3.5-5.8 3.3-5.0 3.5-4.5
PCE inflation 2.4 2.0 2.1 2.0 2.2-2.4 1.8-2.1 2.0-2.2 2.0 2.1-2.6 1.8-2.3 1.9-2.3 2.0
December projection 1.8 1.9 2.0 2.0 1.7-1.9 1.8-2.0 1.9-2.1 2.0 1.2-2.3 1.5-2.2 1.7-2.2 2.0
Core PCE inflation4 2.2 2.0 2.1 2.0-2.3 1.9-2.1 2.0-2.2 1.9-2.5 1.8-2.3 1.9-2.3
December projection 1.8 1.9 2.0 1.7-1.8 1.8-2.0 1.9-2.1 1.5-2.3 1.6-2.2 1.7-2.2
Memo: Projected appropriate policy path
Federal funds rate 0.1 0.1 0.1 2.5 0.1 0.1-0.4 0.1-0.9 2.3-2.5 0.1 0.1-0.6 0.1-1.1 2.0-3.0
December projection 0.1 0.1 0.1 2.5 0.1 0.1 0.1-0.4 2.3-2.5 0.1 0.1-0.4 0.1-1.1 2.0-3.0

Figure 1. Medians, central tendencies, and ranges of economic projections, 2021-23 and over the longer run

Change in real GDP

Percent

2016 2017 2018 2019 2020 2021 2022 2023 Longer run
Actual 2.1 2.7 2.5 2.3 -2.4 - - - -
Upper End of Range - - - - - 7.3 4.4 2.6 2.2
Upper End of Central Tendency - - - - - 6.6 3.8 2.5 2.0
Median - - - - - 6.5 3.3 2.2 1.8
Lower End of Central Tendency - - - - - 5.8 3.0 2.0 1.8
Lower End of Range - - - - - 5.0 2.5 1.7 1.6

Unemployment rate

Percent

2016 2017 2018 2019 2020 2021 2022 2023 Longer run
Actual 4.8 4.2 3.8 3.6 6.7 - - - -
Upper End of Range - - - - - 5.5 4.2 4.0 4.5
Upper End of Central Tendency - - - - - 4.7 4.0 3.8 4.3
Median - - - - - 4.5 3.9 3.5 4.0
Lower End of Central Tendency - - - - - 4.2 3.6 3.2 3.8
Lower End of Range - - - - - 4.0 3.2 3.0 3.5

PCE inflation

Percent

2016 2017 2018 2019 2020 2021 2022 2023 Longer run
Actual 1.6 1.8 2.0 1.5 1.2 - - - -
Upper End of Range - - - - - 2.6 2.3 2.3 2.0
Upper End of Central Tendency - - - - - 2.4 2.1 2.2 2.0
Median - - - - - 2.4 2.0 2.1 2.0
Lower End of Central Tendency - - - - - 2.2 1.8 2.0 2.0
Lower End of Range - - - - - 2.1 1.8 1.9 2.0

Core PCE inflation

Percent

2016 2017 2018 2019 2020 2021 2022 Longer run
Actual 1.8 1.7 2.0 1.6 1.4 - - -
Upper End of Range - - - - - 2.5 2.3 2.3
Upper End of Central Tendency - - - - - 2.3 2.1 2.2
Median - - - - - 2.2 2.0 2.1
Lower End of Central Tendency - - - - - 2.0 1.9 2.0
Lower End of Range - - - - - 1.9 1.8 1.9

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

Midpoint of target range or target level (Percent) 2021 2022 2023 Longer run
3.000 2
2.875
2.750 1
2.625
2.500 8
2.375 1
2.250 4
2.125
2.000 1
1.875
1.750
1.625
1.500
1.375
1.250
1.125 2
1.000
0.875 3
0.750
0.625 1 1
0.500
0.375 3 1
0.250
0.125 18 14 11

Figure 3.A. Distribution of participants' projections for the change in real GDP, 2021-23 and over the longer run

Histograms, four panels.

Number of participants

Percent Range 2021 2022 2023 Longer run
December projections March projections December projections March projections December projections March projections December projections March projections
0.2 - 0.3
0.4 - 0.5 1
0.6 - 0.7
0.8 - 0.9
1.0 - 1.1
1.2 - 1.3
1.4 - 1.5
1.6 - 1.7 1 4 3
1.8 - 1.9 1 7 8
2.0 - 2.1 1 5 4 5
2.2 - 2.3 4 5 1 1
2.4 - 2.5 2 2 7 5
2.6 - 2.7 1 2 1
2.8 - 2.9 1
3.0 - 3.1 4 3 2
3.2 - 3.3 1 5 4
3.4 - 3.5 1 3 3 1
3.6 - 3.7 1
3.8 - 3.9 1 2
4.0 - 4.1 2 2 1
4.2 - 4.3 3 1
4.4 - 4.5 1 1
4.6 - 4.7 2
4.8 - 4.9
5.0 - 5.1 3 1
5.2 - 5.3
5.4 - 5.5 1 1
5.6 - 5.7 1
5.8 - 5.9 2
6.0 - 6.1 2
6.2 - 6.3
6.4 - 6.5 4
6.6 - 6.7 5
6.8 - 6.9
7.0 - 7.1 1
7.2 - 7.3 1

Figure 3.B. Distribution of participants' projections for the unemployment rate, 2021-23 and over the longer run

Histograms, four panels.

Number of participants

Percent Range 2021 2022 2023 Longer run
December projections March projections December projections March projections December projections March projections December projections March projections
2.8 - 2.9
3.0 - 3.1 3
3.2 - 3.3 3 1 1
3.4 - 3.5 1 6 7 1 2
3.6 - 3.7 2 5 4 3
3.8 - 3.9 1 5 3 4 4
4.0 - 4.1 2 3 4 3 1 1 4 4
4.2 - 4.3 3 3 2 2 4 5
4.4 - 4.5 1 4 2 2 3 2
4.6 - 4.7 1 5 1
4.8 - 4.9 2 2 1
5.0 - 5.1 5 1 1
5.2 - 5.3 2
5.4 - 5.5 1 1
5.6 - 5.7 1
5.8 - 5.9 1 1
6.0 - 6.1
6.2 - 6.3
6.4 - 6.5
6.6 - 6.7
6.8 - 6.9 1

Figure 3.C. Distribution of participants' projections for PCE inflation, 2021-23 and over the longer run

Histograms, four panels.

Number of participants

Percent Range 2021 2022 2023 Longer run
December projections March projections December projections March projections December projections March projections December projections March projections
0.9 - 1.0
1.1 - 1.2 1
1.3 - 1.4
1.5 - 1.6 1
1.7 - 1.8 12 4 4 1
1.9 - 2.0 2 9 10 9 8 17 18
2.1 - 2.2 1 5 3 2 7 9
2.3 - 2.4 1 11 2 1
2.5 - 2.6 2

Figure 3.D. Distribution of participants' projections for core PCE inflation, 2021-23

Histograms, three panels.

Number of participants

Percent Range 2021 2022 2023
December projections March projections December projections March projections December projections March projections
1.3 - 1.4
1.5 - 1.6 2 1
1.7 - 1.8 12 6 2 1
1.9 - 2.0 1 4 7 11 10 7
2.1 - 2.2 1 10 3 3 6 10
2.3 - 2.4 1 3 2 1
2.5 - 2.6 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, 2021-23 and over the longer run

Histograms, four panels.

Number of participants

Percent Range 2021 2022 2023 Longer run
December projections March projections December projections March projections December projections March projections December projections March projections
0.13 - 0.37 17 18 16 14 12 11
0.38 - 0.62 1 3 3 1
0.63 - 0.87 1 1 1
0.88 - 1.12 3
1.13 - 1.37 1 2
1.38 - 1.62
1.63 - 1.87
1.88 - 2.12 1 1
2.13 - 2.37 3 4
2.38 - 2.62 9 9
2.63 - 2.87 1 1
2.88 - 3.12 2 2

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

2016 2017 2018 2019 2020 2021 2022 2023
Actual 2.1 2.7 2.5 2.3 -2.4 - - -
Upper end of 70% Confidence Interval - - - - - 8.1 5.4 4.5
Median - - - - - 6.5 3.3 2.2
Lower End of 70% Confidence Interval - - - - - 4.9 1.2 0.1

FOMC participants' assessments of uncertainty and risks around their economic projections

Histograms, two panels.

Uncertainty about GDP growth

Number of participants

Lower Broadly Similar Higher
March projections 0 3 15
December projections 0 1 16

Risks to GDP growth

Number of participants

Weighted to Downside Broadly Balanced Weighted to Upside
March projections 2 13 3
December projections 6 10 1

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

2016 2017 2018 2019 2020 2021 2022 2023
Actual 4.8 4.2 3.8 3.6 6.7 - - -
Upper end of 70% Confidence Interval - - - - - 5.3 5.3 5.4
Median - - - - - 4.5 3.9 3.5
Lower End of 70% Confidence Interval - - - - - 3.7 2.5 1.6

FOMC participants' assessments of uncertainty and risks around their economic projections

Histograms, two panels.

Uncertainty about the unemployment rate

Number of participants

Lower Broadly Similar Higher
March projections 0 2 16
December projections 0 1 16

Risks to the unemployment rate

Number of participants

Weighted to Downside Broadly Balanced Weighted to Upside
March projections 2 15 1
December projections 0 10 7

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

Median projection and confidence interval based on historical forecast errors

PCE inflation

Percent

2016 2017 2018 2019 2020 2021 2022 2023
Actual 1.6 1.8 2.0 1.5 1.2 - - -
Upper end of 70% Confidence Interval - - - - - 3.3 3 3.2
Median - - - - - 2.4 2.0 2.1
Lower End of 70% Confidence Interval - - - - - 1.5 1 1

FOMC participants' assessments of uncertainty and risks around their economic projections

Histograms, four panels.

Uncertainty about PCE inflation

Number of participants

Lower Broadly Similar Higher
March projections 0 2 16
December projections 0 3 14

Risks to PCE inflation

Number of participants

Weighted to Downside Broadly Balanced Weighted to Upside
March projections 1 12 5
December projections 9 7 1

Uncertainty about core PCE inflation

Number of participants

Lower Broadly Similar Higher
March projections 0 2 16
December projections 0 3 14

Risks to core PCE inflation

Number of participants

Weighted to Downside Broadly Balanced Weighted to Upside
March projections 1 12 5
December projections 9 7 1

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

Diffusion index

SEP Change in real GDP Unemployment rate PCE inflation Core PCE inflation
October 2007 0.76 0.53 0.35 0.06
January 2008 0.88 0.76 0.29 0.29
April 2008 0.82 0.71 0.59 0.41
June 2008 0.76 0.65 0.82 0.47
October 2008 1 0.94 0.65 0.71
January 2009 1 1 0.88 0.88
April 2009 1 1 0.82 0.82
June 2009 0.94 0.94 0.76 0.76
November 2009 0.94 0.82 0.76 0.82
January 2010 0.82 0.71 0.71 0.76
April 2010 0.71 0.76 0.71 0.65
June 2010 0.82 0.76 0.71 0.65
November 2010 0.89 0.83 0.72 0.72
January 2011 0.72 0.67 0.72 0.67
April 2011 0.59 0.65 0.71 0.59
June 2011 0.76 0.76 0.76 0.65
November 2011 0.94 0.82 0.65 0.59
January 2012 0.94 0.82 0.53 0.47
April 2012 0.76 0.76 0.47 0.35
June 2012 0.95 0.95 0.47 0.37
September 2012 0.89 0.89 0.37 0.32
December 2012 0.95 0.89 0.26 0.26
March 2013 0.63 0.63 0.16 0.16
June 2013 0.37 0.32 0.16 0.16
September 2013 0.24 0.24 0.12 0.12
December 2013 0.18 0.18 0 0
March 2014 0.12 0.12 0.06 0.06
June 2014 0.19 0.12 0.12 0.12
September 2014 0.24 0.24 0.06 0.06
December 2014 0.06 0.12 0.24 0.12
March 2015 0.12 0.12 0.24 0.18
June 2015 0.18 0.12 0.18 0.06
September 2015 0.12 0.06 0.18 0.18
December 2015 0.12 0.06 0.12 0.12
March 2016 0 0 0.12 0.06
June 2016 0.18 0.06 0.06 0
September 2016 0 0 0.12 -0.06
December 2016 0.35 0.29 0.24 0.18
March 2017 0.29 0.24 0.18 0.18
June 2017 0.12 0 0 0
September 2017 0.12 0 0 0
December 2017 0.12 0.12 0 0
March 2018 0.07 0.07 0 0
June 2018 0.07 0.07 0.07 0.07
September 2018 0.12 0.19 0.06 0.06
December 2018 0.18 0.29 0.06 0.06
March 2019 0.18 0.24 0.12 0.12
June 2019 0.35 0.47 0.18 0.18
September 2019 0.35 0.47 0.24 0.24
December 2019 0.24 0.24 0.12 0.12
June 2020 1 1 1 1
September 2020 1 1 0.94 0.94
December 2020 0.94 0.94 0.82 0.82
March 2021 0.83 0.89 0.89 0.89

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

Diffusion index

SEP Change in real GDP Unemployment rate PCE inflation Core PCE inflation
October 2007 -0.76 0.71 0.47 0.41
January 2008 -0.71 0.76 0.35 0.29
April 2008 -0.76 0.71 0.47 0.41
June 2008 -0.82 0.82 0.76 0.53
October 2008 -0.82 0.88 -0.29 -0.18
January 2009 -0.81 0.88 -0.44 -0.44
April 2009 -0.65 0.71 -0.24 -0.24
June 2009 -0.41 0.41 -0.06 -0.06
November 2009 -0.06 0.18 0 -0.06
January 2010 -0.06 0.18 0.06 0.06
April 2010 0.18 0.06 0 0
June 2010 -0.53 0.47 -0.18 -0.18
November 2010 -0.33 0.5 -0.17 -0.17
January 2011 0.11 0.11 0.06 0.06
April 2011 -0.12 0.06 0.47 0.35
June 2011 -0.65 0.53 0.29 0.24
November 2011 -0.65 0.65 -0.06 -0.06
January 2012 -0.65 0.59 0 0
April 2012 -0.47 0.53 0.18 0.12
June 2012 -0.79 0.68 -0.16 -0.16
September 2012 -0.74 0.68 -0.05 -0.05
December 2012 -0.68 0.68 -0.05 -0.05
March 2013 -0.42 0.32 -0.11 -0.11
June 2013 -0.37 0.32 -0.16 -0.16
September 2013 -0.47 0.24 -0.24 -0.24
December 2013 -0.12 0.06 -0.18 -0.18
March 2014 -0.12 0 -0.25 -0.25
June 2014 -0.25 0.06 -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 -0.24 0 -0.41 -0.41
June 2015 -0.24 0.06 -0.24 -0.24
September 2015 -0.41 0.29 -0.47 -0.47
December 2015 -0.12 0 -0.41 -0.47
March 2016 -0.47 0.12 -0.65 -0.59
June 2016 -0.35 0.18 -0.35 -0.35
September 2016 -0.18 0.06 -0.24 -0.24
December 2016 0.18 -0.18 0.06 0.06
March 2017 0.18 -0.24 0.18 0.18
June 2017 0.06 -0.12 -0.06 -0.06
September 2017 0 -0.06 -0.19 -0.19
December 2017 0.19 -0.19 0 0
March 2018 0.2 -0.27 0.2 0.2
June 2018 0.07 -0.07 0.07 0.07
September 2018 0.06 -0.06 0.19 0.19
December 2018 -0.12 -0.06 0.06 0.06
March 2019 -0.24 0.06 -0.18 -0.18
June 2019 -0.82 0.71 -0.53 -0.53
September 2019 -0.76 0.53 -0.29 -0.29
December 2019 -0.53 0.47 -0.35 -0.35
June 2020 -0.71 0.71 -0.76 -0.76
September 2020 -0.65 0.65 -0.59 -0.59
December 2020 -0.29 0.41 -0.47 -0.47
March 2021 0.06 -0.06 0.22 0.22

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

Federal Funds Rate

Percent

2016 2017 2018 2019 2020 2021 2022 2023
Actual .6 1.4 2.4 1.6 .1 - - -
Upper end of 70% Confidence Interval - - - - - 1.1 2.3 2.6
Median - - - - - .1 .1 .1
Lower End of 70% Confidence Interval - - - - - 0 0 0

Table 2. Average Historical Projection Error Ranges

Percentage points

Variable 2021 2022 2023
Change in real GDP1 ±1.6 ±2.1 ±2.2
Unemployment rate1 ±0.8 ±1.4 ±1.9
Total consumer prices2 ±0.9 ±1.0 ±1.1
Short-term interest rates3 ±1.0 ±2.2 ±2.5

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 1.4 to 4.6 percent in the current year, 0.9 to 5.1 percent in the second year, and 0.8 to 5.2 percent in the third year. The corresponding 70 percent confidence intervals for overall inflation would be 1.1 to 2.9 percent in the current year, 1.0 to 3.0 percent in the second year, and 0.9 to 3.1 percent in the third 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 end-of-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.