Every Fed participant projects a soft landing scenario for 2022 and 2023.

In conjunction with the Fed's FOMC meeting on September 21, each Fed member made projections for interest rates, the unemployment rate, inflation, and GDP. 
 

PCE Inflation

• The Fed wants 2.0 percent inflation longer term so every Fed member forecast precisely 2.0 percent inflation despite the fact the Fed missed projections for a decade. 
• I really don't know where inflation will be in 2022 or 2023 or longer term and neither do they. There are too many moving parts with Russia, the mid-term elections, Biden's energy policy, and heaven help us if the Democrats manage to hold the House while adding even 1 seat to the Senate.
   

Unemployment Rate 

• The Fed projects the unemployment rate for 2022 at 3.8 percent. That's only up 0.1 percentage points from now.
• Unlike most, I do not think the unemployment rate will rise as much as it normally does in recessions. 
• While a 3.8 percent unemployment rate is possible, it's on the very optimistic side for sure.
   

GDP

• Purposely and wimpishly ducking recession calls, the Fed never directly projects recessions. But from where we are now, their 2022 GDP forecast goes beyond wildly optimistic and implies no recession. 
• Nor does it appear there is a single recession forecast for 2023. 
• What makes 2023 somewhat debatable is the fact that Fed GDP projections are  4th quarter to 4th quarter so technically there could be a 2023 short recession followed by a rebound in the second half of 2023.
• For 2022, it's clear. The Fed sees a second-half rebound, not a recession as the following chart shows.
   

Real GDP 2021-2022

Real GDP Data from BEA chart by Mish
 

 GDP Projection Analysis (Numbers in Billions of Dollars)

• Real GDP in the 4th quarter of 2021 was 19,806
• Real GDP in the second quarter of 2022 was 19,699
• For the Fed's 0.2 median year-over-year forecasts to happen, 4th quarter GDP would need to be 19846 or higher, a rise of at least 177.  
• That means real GDP would need to rise by 0.90 percent in the second half.  And that would match the post-Covid GDP high. 
• Annualized, the Fed is projecting over 1.8 percent growth in the second half of 2022. 

How likely is 1.8 percent annualized growth in the second half coupled with Fed rate hike projections?
 

Dot Plot Shows Fed Anticipates More Hikes in 2023 to 4.50 Percent

Dot Plot of FOMC participant Expectations

Yesterday, I noted a Dot Plot Shows Fed Anticipates More Hikes in 2023 to 4.50 Percent

The median Fed forecast for December 2022 is 4.25 percent. We are currently in a range of 3.0 to 3.25 percent. 
 

Fed Credibility in Focus

The median Fed rate hike projection is over another full point hike this year. 

Simultaneously, the median forecast is for GDP to rise 1.8 annualized in the second half with housing falling off a cliff and consumer spending weakening.

Since the lowest 4th-quarter GDP projection is zero percent year-over-year, note that every Fed member believes GDP will rise in the second half. 
 

GDPNow Forecast for 2022 Q3 Barely Positive Following Housing Starts Report

Adding to the Fed's credibility problem the GDPNow Forecast for 2022 Q3 Barely Positive Following Housing Starts Report

The Atlanta Fed currently projects third-quarter GDP at 0.3 percent (and stair stepping lower). 
 

Existing Home Sales Decline Every Month Since February, Down 0.4 Percent in August

Meanwhile, Existing Home Sales Decline Every Month Since February, Down 0.4 Percent in August

Yet, the Fed is projecting 1.8 percent second-half growth (nearly all of which needs to happen in the fourth quarter based on current data). 

100% of Fed participants expect no less than an all-time GDP high in the 4th quarter! That's what 0% year-over-year would mean. The median expectation is greater.

The Fed is not making predictions, the Fed is making Fantasyland wishes.

 What an incredulous hoot.

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