How far into the future do policymakers forecast?
The projections made in March and June are for the current year, for the subsequent two years, and for the longer run. The projections made in September and December are for the current year, for the subsequent three years, and for the longer run. The longer-run projections are the rates of GDP growth, inflation, and unemployment to which a policymaker expects the economy to converge over time–maybe in five or six years–in the absence of further shocks and under appropriate monetary policy. Because appropriate monetary policy, by definition, is aimed at achieving the Federal Reserve’s dual mandate of maximum employment and price stability in the longer run, policymakers’ longer-run projections for economic growth and unemployment may be interpreted, respectively, as estimates of the economy’s longer-run potential growth rate and the longer-run normal rate of unemployment; similarly, the longer-run projection of inflation is the rate of inflation that the FOMC judges to be most consistent with its dual mandate in the longer term.
