The Fed’s current projections are more realistic than those made in September but continue to reflect a degree of wishful thinking.

• Unemployment Rate & Real GDP. It is difficult for me to believe that Real GDP Growth will be flat in 2023 at 0.5% as the Unemployment Rate increases from 3.7% to 4.6% over the same period (see the Fed’s median projections and more HERE).
  • One would expect Real GDP to decline as the Unemployment Rate increases, especially given the fact that the consumer has taken on more debt as savings dwindle.
  • Further, I believe that the Unemployment Rate will peak at a level that is higher than the Fed’s forecast of 4.6% for 2023 and 2024 (see Fed projections, link above).
• Unemployment Rate & Inflation. The Unemployment Rate will have to increase more than what the Fed estimates for 2023 (4.6% at the median), in order for inflation as measured by PCE and Core PCE to come down as the Fed estimates in 2023 (3.1% and 3.5% respectively).
  • Either the Fed’s Unemployment Rate estimate is too low or its inflation estimates (PCE, Core PCE), are too low.

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