Fed Revises Projections Downward, Keeps Policy the Same

Federal Reserve Board Chairman Ben Bernanke testifies before a House Financial Services Committee

Photo by Mark Wilson/Getty Images

The Federal Reserve put out its latest monetary policy statement today and the news is no news. Zero change. And yet the range of core inflation forecast for 2013 was revised downward. So was the range of overall inflation. And the real growth rate for 2013 was also revised downward, as was the real growth outlook for 2014.

So if projected inflation and projected real growth are being revised downward, why aren’t new policy initiatives being announced? Or another way to look at it, if back in December the Fed liked policies that it thought would produce the outcomes that it foresaw in December why doesn’t it now want policies that will achieve those same outcomes? Recall that both inflation and real output were revised downward. That is, by definition, a demand problem. A supply shock would send growth and inflation in opposite directions.