The minutes of the April meeting of the Federal Reserve’s Federal Open Markets Committee (FOMC) were released yesterday. They reflected the Fed’s view that the economy would continue to weaken and contained amended projections of much higher inflation as well as slower growth.
All of the Fed’s weaker economic projections stopped just short of declaring that we are in or are headed into a recession. But the dubious use of core Consumer Price Index (CPI) inflation measures that exclude food and energy as opposed to the broader measure as the deflator in Gross Domestic Product (GDP) calculations is the difference between whether we are technically in a recession or not. So I guess those of us who do not eat or use energy are not in recession, the rest of us are.
The report stated, “The projections suggest that FOMC participants expected economic growth to be much weaker in 2008 than last year, owing primarily to a continued contraction of housing activity, a reduction in the availability of household and business credit, and rising energy prices. The unemployment rate was expected to increase significantly.”
That is clear enough and the Fed probably should have stopped there. The projections are a compilation of predictions from Federal Reserve Governors and Reserve Bank Presidents. The report included the following pearls: “Most participants viewed the risks to their GDP projections as weighted to the downside and the associated risks to their projections of the unemployment rate as tilted to the upside.”
I am not sure what that means but I bet they could have said it more clearly if they really tried.
And: “Regarding risks to the inflation outlook, participants pointed to the possibility that economic slack could put either more or less downward pressure on costs and prices than anticipated.”
Well that is clear: inflation will either be higher or lower than the outlook. Way to step out.
More and more, the numbers reported by the government are being questioned. The recent April CPI report stated that energy costs dropped for the month once seasonal adjustments were made. A hard pill for those of us paying $4 plus for a gallon of gas.
Tags: Consumer Price Index, Federal Reserve, FOMC, Gross Domestic Product
