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A Not-So-Pivotal Year After All

By: Kari English

In my February column, I compared several Federal Reserve Bank presidents’ predictions for economic growth this year. Some were optimistic, such as Philadelphia Fed President Charles Plosser and St. Louis Fed President James Bullard, who both predicted around 3 percent growth. And some were more pessimistic, such as Minneapolis Fed President Narayana Kocherlakota and Kansas City Fed President Esther George, who forecast 2.5 percent and 2 percent, respectively.

Then there was Atlanta Fed President Dennis Lockhart, who said 2013 could be a pivotal year. According to Lockhart, if fiscal policy successfully addressed the remaining issues and provided a multiyear roadmap toward fiscal health, those actions would help reduce the uncertainty and help the economic recovery significantly.

Unfortunately, the pessimists were right. Economic growth is expected to be around 2 percent for 2013. So, what do the Fed presidents think will happen in 2014? Several of them have offered opinions in recent speeches.

Among those optimistic about economic growth going into 2014 is Richmond Fed President Jeffrey Lacker. In his speech he said, “Earlier this year, I argued that annual GDP growth would likely be roughly 3 percent. I have since revised downward my estimate to roughly 2 percent. However, I still see room for optimism regarding our fundamental prospects, in contrast to some ‘stagnationists,’ who see growth as becoming increasingly harder to achieve over time.”

Philadelphia Fed President Charles Plosser is maintaining his optimistic view of the economy. Recently, he said he expects growth of about 3 percent in 2014 and unemployment rates near 7 percent by the end of this year or early next year and about 6.25 percent by the end of 2014. Inflation expectations will be relatively stable, and inflation will move up toward the FOMC target of 2 percent over the next year, he said.

Atlanta Fed President Lockhart was incorrect in that 2013 most certainly did not turn out to be a pivotal year. But most likely Lockhart was right that fiscal policy would play a large role in exactly how much and how quickly the economy improved. In a speech at a business and economic summit last month, he noted his concern regarding the fiscal drag that is weighing on the economy. Despite this, his outlook is fairly optimistic. Although he did not allude to 2014 or even 2015 being a pivotal year, Lockhart said he is “assuming stronger economic activity next year — a growth rate in the range of 2 1/2 to 3 percent.”

To learn more about the presidents’ predictions for growth, inflation and the unemployment rate in 2014, click on the links below. 

Federal Reserve Bank Presidents' Speeches

Articles and Information on Economic Growth

Kari English is senior editor of BankNews.

Copyright (c) December 2013 by BankNews Media