the Federal Reserve has just released its latest economic projections the tone of that is very very cautious i would say even wary and we have to look past the headlines that we see you know posted on all the the news sites which actually don't look that bad but if you dig deeper the message to me is very very clear that the path ahead is uncertain and we're facing some real real risks i want to break down what the Federal Reserve is actually saying in their June 2025 report and why it should make you take notice i want to start with what they're forecasting for 2025 real GDP growth that is just 1.4% that's a downgrade from 1.7% in March unemployment they have rising to 4.5% in 2025 up from March's 4.4% estimate pce inflation they have at 3.0% that's higher than March's 2.7% expectation core PCE inflation they're showing that up at 3.1% from 2.8% so they have growth slipping they have inflation still elevated and they have unemployment that is expected to edge up none of these numbers are good and that's just the surface so let's talk GDP here look a little bit deeper the Fed's own projections show slowing growth through at least 2026 and then they have the change in real GDP in 2027 at 1.8% so that is below or at their longer run average of 1.8% the implication here is that we're headed for years of below trend growth now on the jobs front the Fed sees unemployment stuck at around 4.5% through 2026 the unemployment rate then for 2027 drops to 4.4% but again the longer run here is 4.2 so in other words they're saying that they don't expect the labor market to actually collapse but they don't expect it to heal very quickly either then they look at inflation yes it's coming down you can see that on the chart here but it's coming down slowly too slowly the core PCE inflation still expected to be above the Fed's 2% target all the way through 2027 and you can see here that these numbers are all up from their projection just a few months ago that to me is a warning sign critical here how is the Fed responding Well they are keeping interest rates higher for longer they're projecting 3.9% this year 3.6% next year then 3.4% in 2027 and that is a big deal that is important because these higher interest rates they hurt everything uh home buyers small businesses corporate debt anytime you're borrowing money becomes more expensive investors become more cautious and they don't see it changing anytime soon even though the Fed does show inflation slowly easing its rate path remains elevated and that's because they are truly not convinced that inflation is under control and they are going to keep monetary policy tight until they feel that it is so what is driving this pessimism Well it's uncertainty and the Fed is I would say unusually candid in this report about it in a section titled forecast uncertainty they warn considerable uncertainty attends these projections they talk about the models being necessarily imperfect descriptions of the real world and future path of the economy can be affected by myriad unforeseen developments and events they even provide a statistical buffer or an average historical projections error ranges change in real GDP plus or minus 1.7 in 2025 1.8 in 2026 and 2.2 in 2027 unemployment rate they have a buffer plus or minus 0.9% this year plus or - 1.4% next year 1.9% in 2027 the same goes for inflation total consumer prices error range plus or minus 1% in 2025 plus or minus 1.7% in 2026 and plus or minus 1.4% for 2027 so when you take everything here in aggregate the Fed isn't just signaling caution here they're actually warning that the risks of being wrong are still very very real now in just a moment I'm going to look at the Fed's predictions their outlook but I did want to take a moment to thank Harvest ETFs for supporting this video now today we're talking about uncertainty in particular the Fed's uncertainty and every one of these measures we're looking at is out of our control and they aren't going away 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gross domestic product GDP growth the unemployment rate and inflation for each year from 2025 to 2027 and over the longer run participants also provide judgments as to whether their risks to the projections are weighted to the upside or weighted to the downside or are broadly balanced now in the June projection charts there was a meaningful number of these participants who saw risks that were skewed towards higher inflation and lower growth i want to look at those four charts right now number one and this chart shows that many Fed officials are feeling more uncertain than usual about their forecast for economic growth they're saying essentially here the outlook isn't clear and we don't have a strong read on where growth is headed on the risk side you can see here that a noticeable group points to downside risks and that means that they believe growth is likely to come in weaker than they've even projected and that to me is a real red flag it does suggest that the economy could slow even more than they were expecting in these assumptions here now figure 4 b this is uncertainty and risks in projections of the unemployment rate now for unemployment the message is more mixed but it is still cautious there are some participants who feel that forecasts are about as uncertain as usual you can see broadly similar on this chart here but there's others who think that the labor market is harder to predict right now more importantly a significant number of Fed members do see downside risks and that means that they think that unemployment could rise more than they currently expect weighted to upside here means that they feel unemployment could rise more than they're projecting and this shows some anxiety that even a mild slowdown could lead to more job losses than anticipated now figure 4 c uncertainty and risks in projections of PCE inflation when it comes to the overall inflation the Fed's tone here is clearly one of caution to me and this chart shows that many participants feel more uncertain than usual about where inflation is headed but even more concerning to me than that is a big share also think that inflation is more likely to come in above their forecast so that means that the risk is tilted even more toward inflation being stickier and harder to tame than expected and if that happens of course it could delay rate cuts or it could force even more tightening now one more thing important to note here in core inflation which excludes food and energy prices this shows a similar story the Fed participants express an elevated uncertainty and many believe the risks are skewed towards higher inflation so in simple terms what they're saying here is that even if the headline inflation does dip the underlying price pressures might stick around for a while longer and that would complicate their efforts to get the inflation rate back to that 2% target and the way I see these charts are in short uh the Fed's warning that they don't just see a slow growth high inflation scenario they're saying it is more likely than not that things could turn out to be worse than they actually hope so then we have to look at what would happen if things don't improve and in a scenario like that the Fed might hold their rates even higher or they could be forced to act in other ways and they mentioned that in the report here they mentioned that they may need to use non-traditional tools they say in such situations the committee could also employ other tools including forward guidance and largecale asset purchases to provide additional accommodation and that's clearly Fed code for emergency measures and it tells you just how seriously they're taking the potential for some shocks to come up ahead bottom line is this the Fed is seeing a future where growth slows they see inflation sticking around they say interest rates staying high and they are warning us on top of this that any number of things could still go wrong so they are sending a very clear message that we're not out of the woods yet what do you think Do you feel that the Fed is being overly cautious or are they just being prudent Let me know what your thoughts are in the comment now a quick programming note here i will be taking a few weeks off just to relax recharge i'll be back here around the middle of July happy early Canada Day to our Canadian viewers happy early Independence Day to our US audience i hope you found this info helpful as always I say thank you for watching and we'll see you in a few weeks