Wednesday, February 17, 2010

FRB SF More Optimistic than I am

The Federal Reserve Bank of San Francisco is forecasting real GDP to grow almost 4 percent per year for the next 3 years, whereas I am forecasting 2.5 percent per year.

I am not sure what exactly they mean by "output gap," but whatever it is they expect it to disappear by the end of 2012. I think it will be many years (more than 7) before employment per capita returns to pre-recession levels or real GDP returns to the pre-recession trend line, so that is the primary reason why our forecasts differ.

I even gave a reason last week why my 2.5%/yr might be too optimistic.

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