The Federal Reserve Bank of New York lowered its projection for growth in the US this year as the economy loses momentum and uncertainty over policies lingers alongside heightened geopolitical risks.
In its staff outlook on growth, unemployment and inflation for this year and next, the New York Fed said they see GDP growth of 2% this year, half a percentage point lower than their forecast made a year ago. Expansion is seen moderating “slightly further” to 1.8% in 2020, the regulator said.
“We have seen a noticeable loss of momentum in the US economy toward the end of last year and the start of this year, with growth of both consumer spending and business fixed investment slowing relative to their 2018 performance,” bank officials, including David Lucca, assistant vice president in the research and statistics group, said in the report.
The unemployment rate is seen remaining near 3.75% through the year, below the NY Fed’s estimate of the longer-run rate of 4.1% that’s associated with stable inflation. In the March non-farm payrolls report released earlier Friday, government data showed the jobless rate held steady at 3.8% last month. In 2020, the NY Fed sees employment also at 3.75% through much of the year before it starts to rise slowly in the latter part.
The core personal consumption expenditure, or PCE, price index is projected to be near the Federal Open Market Committee’s longer-run 2% target though this year.
In 2020, “inflation is expected to be slightly above 2%, as pressures from tight resource utilization are mitigated by a flat Phillips curve and well-anchored inflation expectations.” The Phillips curve concept holds that unemployment and inflation have an inverse relationship, where increasing inflation decreases unemployment and vice versa.
Financial conditions have eased after tightening in the fourth quarter, but on balance are still tighter now than they were over the last year.
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“Moreover, there remains substantial uncertainty regarding economic and trade policy, while geopolitical risks are heightened,” the NY Fed officials said. “Partially offsetting these factors is the expectation of faster growth for government expenditures.”