From the Federal Reserve Bank of Philadelphia:
Growth in U.S. real output over the near term looks a bit slower and inflation a bit higher than they did just three months ago, according to 51 forecasters surveyed by the Federal Reserve Bank of Philadelphia. The forecasters peg current quarter growth in real GDP at an annual rate of 2.7 percent, down from 3.1 percent in the last survey. Growth in the fourth quarter will average 2.9 percent, down just a bit from the forecasters’ previous estimate of 3.0 percent. Our panelists project growth on an annual-average over annual-average basis of 3.4 percent this year, unchanged from their previous estimate, and 2.8 percent in 2007, down from their previous estimate of 3.0 percent.
The Philly prognosticaters are a bit more optimistic about job growth than the recently prodded Wall Street Journal panel:
On the jobs front, the forecasters see nonfarm payroll employment expanding at a rate of 125,000 jobs per month this quarter, down from 166,000 in the last survey. Somewhat smaller downward revisions to job gains characterize the following two quarters. Over the next two years, the forecasters see jobs expanding at a pace of 154,000 per month in 2006, down from 170,000 previously, and 126,000 per month in 2007, down from 138,000.
No such luck on the inflation front:
The forecasters have raised their projections for CPI inflation over each of the next four quarters. They now think CPI inflation will average 3.6 percent (annual rate) this quarter, up a full percentage point from their previous estimate. Smaller upward revisions characterize the next few quarters. Similarly, projections for inflation in the GDP price index are also higher, particularly in the current quarter. On a fourth-quarter over fourth-quarter basis, CPI inflation will average 3.3 percent this year and 2.6 percent next year, up from 2.6 percent and 2.4 percent, respectively, in the last survey.
But, those long-term inflation expectations do remain well-contained:
Although the near-term outlook for CPI inflation has worsened in this survey, the outlook over longer horizons is holding relatively unchanged. As the table below shows, in answer to a special question, the forecasters have raised their expectations for CPI inflation in 2008, from 2.35 percent last survey to 2.50 percent this survey. However, the forecast for the annual average rate of inflation over the next 10 years is holding steady at 2.50 percent, the same rate the forecasters have expected since the late 1990s.
Reader Lord asked (in the post linked to above): "Does one interpret that as lacking confidence the Fed will do the right thing or having confidence the Fed will do the wrong thing?" Hard to say. From the Wall Street Journal:
Stocks have been especially sensitive to concerns about inflation since the Fed decided last Tuesday to pause in its two-year campaign to fight inflation. On Friday, a report of strong retail sales in July, rather than boosting confidence in the economy, fueled worries the Fed may keep raising rates later this year, and stocks declined.
For now, economists are split about the likelihood of another increase. Lehman Brothers economist Ethan Harris wrote last Friday that the Fed will likely choose to raise rates at its next meeting due to heightened readings of inflation. Economists at Goldman Sachs, however, say the latest rate increase was the Fed's last for some time. In a note to clients, Goldman economists wrote that the next move by policy makers "is apt to be a rate cut" in the spring of 2007.
For now, the markets appear to be with the Goldman gang, but sentiments are definitely shifting:
Today's July PPI report, and tomorrow's CPI report, loom large. From the aforementioned Journal piece:
"The last few inflation numbers have been above expectations," [said Russ Koesterich, senior portfolio manager at Barclays Global Investments]. "If we get that again tomorrow, the market is going to sell off...