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The Optimists, the Pessimists and the Pivotal Year

By: Kari English

Although all the presidents of the 12 Federal Reserve districts that have given speeches so far this year expect the economy to grow in 2013, opinions vary on how much. The optimists, for example, predict around 3 percent growth, such as Philadelphia Fed President Charles Plosser and St. Louis Fed President James Bullard.

In a speech at the New Jersey Economic Leadership Forum last month, Plosser said that he anticipates the pace of growth to accelerate to about 3 percent in 2013 and 2014 — an outlook that places him at the optimistic end of the central tendency for 2013 and at the pessimistic end for 2014.

Bullard, at an economic forecast luncheon sponsored by the Wisconsin Bankers Association, said he believes real GDP growth will be around 3.2 percent in both 2013 and 2014. He noted, however, that in the past couple years, this type of forecast has proved overly optimistic.

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, believes 2013 is a pivotal year. Fiscal policy uncertainty is part of what is keeping businesses and consumers on the sidelines. And, according to Lockhart, if fiscal policymakers successfully address the remaining issues and provide a multiyear roadmap toward fiscal health, those actions would help reduce the uncertainty that has been holding back the economy. Nevertheless, Lockhart predicts GDP growth in the range of 2 to 2 1/2 percent — basically more of the same.

In what you might consider to be a more pessimistic view of the economy, Federal Reserve Bank of Minneapolis President Narayana Kocherlakota said during a speech on Jan. 10 that he expects output to continue growing slowly — at around 2.5 percent in 2013 and around 3 percent in 2014.

“My own forecast, conditional on the FOMC’s current monetary policy stance, is that inflation will run below the Fed’s target of 2 percent over the next two years and the unemployment rate will remain elevated. This forecast suggests that, if anything, monetary policy is currently too tight, not too easy.”

Also at the lower end of the growth predictions, Kansas City Fed President Esther George said in a speech last month that she expects the economy to continue to grow a bit more than 2 percent in 2013. But where Kocherlakota believes monetary policy is too tight, George hinted it may be too loose. Concerned about inflation, she cautioned in her speech that becoming too “sanguine about the risk of financial instability and the risk of higher inflation can lull us into thinking we can avoid them.”

To learn more about the presidents’ predictions for not only economic growth, but also for inflation and the unemployment rate, click the links below.

The Optimists

Middle of the Road Predictions

The Pessimists

Kari English is senior editor of BankNews.

Copyright (c) February 2013 by BankNews Media