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NY Fed Staff Surprised By Economic Strength But Core PCE Forecast Lowered

FED

NY Fed staff have published an update for their DSGE model forecasts and how it compares with their Dec’23 update.

  • “Once again, the model was surprised by the strength of the economy. The model attributes this forecast error in part to higher-than-expected productivity, and in part to stimulative financial conditions.”
  • GDP growth is seen stronger this year at 1.9% Y/Y in 4Q24 (revised from 1.2%), before an unrevised 0.7% Y/Y for 4Q25.
  • Yet the mean forecast sees core PCE inflation at 2.0% Y/Y for 4Q24 (revised from 2.2% in the Dec update) and 2.0% for 4Q25 (unch from 2.0). It’s then followed by a slightly larger uplift to 2.1% in 4Q26 and 2.2% in 4Q27.
  • “The expected path of the policy rate is essentially unchanged relative to December. The model continues to see policy as being restrictive through the end of 2024”
  • They see the real natural rate of interest drifting from 2.1% in 4Q24, to 1.9% in 4Q25, 1.6% in 4Q26 and 1.4% in 4Q27.

Source: NY Fed

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