Federal Reserve Bank of St. Louis President James Bullard told the Wisconsin Bankers Association that he believes the U.S. gross domestic product (GDP) will grow by around 3.2 percent in 2013 and 2014, a more bullish estimation than some economists are forecasting.
Bullard provided prepared remarks titled “The Fed’s New Regime and the 2013 Outlook” at an economic forecast luncheon sponsored by the WBA in Madison last week. According to Bullard’s economic forecasts, real GDP growth will be around 3.2 percent in 2013 and 2014, and inflation (as measured by the percent change in the personal consumption expenditures price index from a year ago) will remain near the Federal Open Market Committee (FOMC) target of 2 percent during that period.
Bullard attributed the faster economic growth to three main factors: easier monetary policy, reduced headwinds and reduced uncertainty. Bullard added that he believed “unemployment will fall and inflation will remain near target.” On unemployment, Bullard noted that it has improved over the past three years despite sluggish GDP growth.
“I project a continuing downward trend in unemployment,” he said. “I do not think unemployment has yet fallen enough to entice those that have left the labor market to re-enter.”
Bullard also discussed the reduced headwinds and reduced uncertainty in the U.S. “The U.S. housing market has improved during 2012 and I expect this will continue in 2013,” he said.
In addition, he noted that some aspects of the U.S. fiscal situation have been addressed and that he expects more to come. Furthermore, “Growth in emerging markets will likely improve in 2013 relative to 2012,” he said.
The European sovereign debt crisis has recently been less disruptive for global financial markets, Bullard stated. “Euro-area growth will probably not deteriorate the way it did in 2012.”
During his presentation, Bullard discussed recent changes to U.S. monetary policy. He noted that the policy rate has been near zero since December 2008 and that the FOMC has promised to maintain the near-zero rate into the future, so-called “forward guidance.”
“Overall, U.S. monetary policy looks more accommodative today compared to six months ago,” Bullard said. “This may combine with reduced headwinds and reduced uncertainty in the U.S. to produce a better growth environment during 2013.”
