The CBO launched an up to date Financial Outlook yesterday. Projected PCE inflation is increased, as are funds deficits. For me, most attention-grabbing are the GDP projections, together with with respect to potential GDP.
Right here’s the GDP projection as of June, and as of February.
Determine 1: GDP as reported (daring black), February CBO (crimson), June CBO (blue), FT-Sales space median (scarlet triangle), GDPNow as of 18 Jun (gentle blue sq.), all in bn.Ch.2017$ SAAR. Supply: BEA (2024Q1 2nd launch, CBO February Price range and Financial Outlook, June Financial Outlook replace, June Sales space macroeconomist survey, Atlanta Fed.
The CBO projections are primarily based on information accessible as of Could 2nd. The most recent CBO projection is considerably above the February projection (see dialogue right here), largely because of the intervening upside GDP surprises. It’s presently in keeping with the FT-Sales space June median forecast, and the marginally under (for Q2) the Atlanta Fed nowcast. (It’s barely above the Could median Survey of Skilled Forecasters estimate).
Whereas the revised q/q progress fee projections are increased within the brief time period, relative to February forecast (primarily based on information accessible as of January 6), then decelerate to slower charges by finish 2025, implying reversion to potential. That being mentioned, the present implicit CBO projection of the output hole is dramatically totally different than reported within the February Financial Outlook.
Determine 2: Log output hole, in % (daring black), February CBO projection (crimson), Jun CBO projection (blue). Reported relies on reported GDP and Jun CBO estimated potential GDP. Supply: BEA (2024Q1 2nd launch, CBO February Price range and Financial Outlook, June Financial Outlook replace, and writer’s calculations.
This implies the CBO is projecting a constructive output hole for the following yr and half, beneath present regulation. For perspective, the pre-pandemic peak output hole was 0.9 ppts, whereas the best in current historical past is 2.4% in 2000Q2.
It’s attention-grabbing to notice that the CBO projection relies on an assumption the Fed first begins lowering the Fed Funds fee in 2025Q1; this contrasts with projected fee discount by about 60 bps (on common) by finish of 2024 within the February projection.
Determine 3: Fed funds fee (daring black), February CBO projection (crimson), June CBO projection (blue), all in %, interval common. Supply: Federal Reserve, CBO February Price range and Financial Outlook, June Financial Outlook replace.
