Federal Reserve Official Forecasts Weak GDP Growth

New York Fed president expresses concern about uncertainty, predicts weak growth

William Dudley, president of the Federal Reserve Bank of New York / AP
March 1, 2016

A Federal Reserve official forecasted lower GDP growth for 2016 than levels seen during the already weak post-recession expansion.

"I expect real GDP growth of about 2 percent in 2016, slightly below the average pace of growth in this expansion," William Dudley, president of the Federal Reserve Bank of New York, said in his remarks at a symposium in China on Monday.

"Recent economic and financial developments have not yet led me to make a fundamental change in my outlook for U.S. growth in 2016," he said. "At this point, I have marked down my growth outlook very modestly."

"One has to also factor in that the real GDP growth rate in the fourth quarter was only 1.0 percent and the four quarter change was 1.9 percent—low even by the subdued standards of this expansion," Dudley explained.

According to the National Bureau of Economic Research, the most recent recession began in December 2007 and ended in June 2009. Since then, real GDP grew at an annual rate of 2.9 percent in 2010, 1.7 percent in 2011, 2.2 percent in 2012, 1.9 percent in 2013, 2.4 percent in 2014, and 2.4 percent in 2015, which comes to an average growth rate of 2.25 percent since the recession.

Dudley said that economic uncertainty is greater now than it has been in the past and said he is "closely monitoring" global market developments to assess risk. He also said that further volatility may cause him to significantly downgrade his economic outlook.

"Putting these inputs and my judgment together, I see the uncertainties around my forecast to be greater than the typical levels of the past," Dudley said. "This assessment reflects the divergent economic signals I highlighted earlier, and is consistent with the turbulence we have seen in the global financial markets."

Two weeks from now, the Federal Open Market Committee, the policymaking arm of the Federal Reserve, will deliberate on whether to raise the federal funds rate. The group raised the rate by a quarter of a percentage point last December after keeping the rate near zero for seven years.

The Fed is mandated by Congress to base its monetary policy decisions on two objectives, maximum employment and price stability. While their goals are domestic, Dudley said their decisions can affect global markets.

"Our monetary policy actions, however, often have global consequences that, in turn, influence the U.S. economy and financial markets," he said. "The forecast that I have just described is my best assessment of how the U.S. economy will evolve over 2016. But there is uncertainty and risk relative to this baseline forecast, which also needs to be taken into consideration in assessing the implications of the outlook for monetary policy."