Output Gaps and Interest Rates – Survey of Professional Forecasters vs. Troika

The White House economic assumptions (based on February data) released today in the FY ’22 budget imply full employment output at year’s end, contrasting with 1.4% using Survey of Professional Forecasters (from May)

Figure 1: GDP (black), FY’22 budget forecast (blue squares), Survey of Professional Forecasters May forecast (red), CBO estimate of potential GDP (gray line), all in Ch.2012$, SAAR. Source: BEA (2nd release), OMB (May 28), Philadelphia Fed, CBO (February), and author’s calculations.

The output gap (using CBO’s measure of potential) only hits 1.3% by end 2023 (instead of end-2021) using the administration’s estimates. The administration’s fairly restrained inflation forecast — 2.1% in 2021 and 2022 annual y/y — makes sense in that context.

Critical in the sustainability of deficit spending is the evolution of interest rates. To some extent, the administration’s interest rate projections — based on data from February — have been overtaken by events. As shown in Analytical Perspectives Table 2-3 below, the February Administration, CBO, and Blue Chip forecasts for 2021 are comparable.

Figure 2: Ten year Treasury yields (black), FY’22 budget forecast (blue +), Survey of Professional Forecasters May forecast (red). Source: BEA (2nd release), OMB (May 28), and Philadelphia Fed.

The (May) Survey of Professional Forecasters projection is substantially higher than the White House forecast (based on February data); but as Torsten Slok (Apollo) has noted, such forecasts have typically proved to be overestimates.

Source: Torsten Slok.

A similar characterization applies to Blue Chip, CBO forecasts of interest rates.

Forecast assumptions in Table S-9. Comparison with Fed, Blue Chip and CBO in Analytical Perspectives Table 2-3.



43 thoughts on “Output Gaps and Interest Rates – Survey of Professional Forecasters vs. Troika

  1. Moses Herzog

    Fun late night reading (no joke), while taking small breaks from watching “Carnivale” TV show on disc. The fun of being a night owl. Hard to know what to think at this point. Can’t say I don’t feel a little bitter/resentful I really don’t have the cash flow to access all of Torsten Slok’s breakdown. You can bet I’d be reading it if I did. Oh well, I basically have full access to the hardcopy WSJ and don’t read it as thoroughly as I should, so who am I kidding?? (myself mostly I guess)

    I guess all I can say at the moment, not terribly profound, is I hate the term “full employment” because the underlying meaning in which it is most often used means anything but. So much for “diversity” on the NEC cutting down on the bullcr*p. Let’s go back to non-diversity and see if it at least increases the intelligence level. Of course I mean 5+ years prior at least. That last part “went without saying” didn’t it?? OK, no one has to answer that. UNless you feel abused or something, then by all means please.

  2. pgl

    Torsten Slok 2nd degree connection is Chief Economist at Apollo Global Management and lives in Brooklyn.

    I noted this only because his graph that you properly cited by put up by Econned without any attribution at all as usual. Unless Econned thought this graph was provided by LOL.

    BTW – I would love to see how these forecasts of output compare to other measures of full employment.

    1. Moses Herzog

      It said “Apollo” and “Chief Economist” inside the graph itself. I’m guessing your reading comprehension has lowered a bit since your graduate student days??

      1. pgl

        My reading comprehension is fine but yours is wine impaired. I was referring to something Econned put up. Of course he thinks it is beneath him to properly cite sources.

        1. Moses Herzog

          It’s inside the graph dumb-A$$. It’s literally a footnote in the graph. Nobody holds up the cover to an autobiography that says in large print “My Life: By Celebrity X” and says, “This book is written by celebrity X”. Who exactly did you think was the Chief Economist at Apollo now?? Were you debating in your head whether it was Judy Shelton or Neera Tanden?? Again, if I was drinking inside the last 48 hours, which I haven’t, don’t you think it makes you look more dumb if you can’t figure that out sober. You know the old drunk’s cliche when a sober person does something inane~~”I may be……. but what’s your excuse??”

          1. pgl

            You are referring to what Menzie posted. I was referring to an earlier comment from Econned. So who is the dumba$$ – dumba$$? Seriously – sometimes silence is golden but you are too immature to stay silent.

  3. pgl

    “Forecast assumptions in Table S-9. Comparison with Fed, Blue Chip and CBO in Analytical Perspectives Table 2-3.”

    They all basically say once we reach full employment output will grow by 2% per year and not the massive growth rates for the 1983 to 1989 period that Neil Irwin of the NYTimes noted recently. Of course we had a massive output gap in 1983 and the output gap now is much more modest. The NYTimes should fire Neil Irwin for his acting like Lawrence Kudlow..

  4. EConned

    Hey Moses – make sure you clue in Menzie as to his data sources. And also you should somehow mention Trump with an obscure link to a youtube vid. Please do this after your daily dose of ivermectin.

    1. Moses Herzog

      @ EConned
      I don’t remember giving Menzie a hard time on his data sources. Generally I am impressed with and respect Professor Chinn’s sources of data and am hard-pressed inside this moment to think of one that was bad quality. And I’m happy to say I got both of my Moderna shots (and I feel incredibly lucky, fortunate, and grateful to God to have had access to the Moderna vaccine). I was suggesting Ivermectin might be good if places like India were short on other options. But if you have a better idea what India, Brazil, or other countries who can’t get access to the better vaccines should do, I think many people would be interested to know. You’re an intelligent guy and I think you must have come up with a better idea than my postulate of Ivermectin as a provisional action.

      As far as your hero-worship of the orange ape who only got one-term in the White House after losing 306 to 232, I have no cure for that.

    2. Moses Herzog

      @ EConned
      BTW, I can’t help it if you read “Philadelphia Fed” and falsely assumed the survey was only Federal Reserve staff forecasters. What I can assume is that since you are so sensitive about it, I apparently hit the bullseye.

      1. EConned

        I’ am very much curious what on earth brought you to the erroneous assumption that I “falsely assumed the survey was only Federal Reserve staff forecasters”?

  5. ltr


    May 28, 2021

    One Thing Missing From the Biden Budget: Booming Growth
    For all the administration’s focus on transformational policies, it’s not forecasting an outburst of economic potential.
    By Neil Irwin

    President Biden’s budget proposal includes billions of dollars for clean energy, education and child care — ideas being sold for their potential to increase America’s economic potential. One thing it does not include: an outright economic boom.

    In the assumptions that underpin the administration’s budget, economic growth is strong in 2021 and 2022 — but strong enough only to return the economy to its prepandemic trend line, not to surge above the trajectory it was on throughout the 2010s.

    In 2023, G.D.P. growth falls to 2 percent in the budget assumptions, then to 1.8 percent a year through the mid-2020s. That is lower than the 2.3 percent average annual growth rate experienced from 2010 to 2019.

    The administration’s restrained outlook is consistent with projections by other forecasters, including at the Congressional Budget Office and in the private sector. But it means that the Biden White House is not — at least not formally — forecasting the kind of rip-roaring growth that characterized periods like 1983 to 1989 (with an average annual G.D.P. growth of 4.4 percent) and 1994 to 2000 (4 percent).

    Those surges, among other things, helped propel two presidents to comfortable re-elections.

    If the new projections were to prove accurate, it would imply two years of strong growth paired with moderate inflation as the nation recovers from the pandemic heading into the 2022 midterm elections, but then comparatively low growth in the run-up to the 2024 election.

    The sober estimate contrasts with the approach Mr. Biden has taken to selling his agenda publicly. The framing of his signature plans for infrastructure and family support has been that they will enable the economy to become more vibrant and productive.

    “There’s a broad consensus of economists left, right and center, and they agree what I’m proposing will help create millions of jobs and generate historic economic growth,” Mr. Biden said in an address to Congress in April.

    It is a striking contrast with the approach taken by the Trump administration — a gap between presidential styles buried on Table S-9 of the two presidents’ budgets. The Trump administration’s final prepandemic budget proposal, published in February 2020, forecast that the economy would grow around 3 percent per year throughout the 2020s.

    If the Trump projections materialized, by 2030 the economy would be more than 11 percent bigger than what the Biden projections envision. However, the Trump administration persistently underdelivered on growth. G.D.P. rose an average of 2.5 percent in the three nonpandemic years of his presidency. The results are weaker still if you include the contraction of the economy in 2020….

  6. Moses Herzog

    This news just in, later tonight the NBA’s LA Lakers franchise will be changing their name. From now on they are to be known as The LA Floppers. It has yet to be determined if they will have honorary membership into any of the European soccer leagues. Stay tuned for further announcements.

  7. ltr


    May 31, 2021

    O.E.C.D. Raises Global Growth Forecast Sharply, Citing Vaccines
    The world economy is expected to expand by 5.8 percent this year, but success depends on beating down variants of the virus, the group said.
    By Liz Alderman

    The global economy is expected to recover from the coronavirus pandemic faster than expected this year, as vaccinations in advanced economies and a massive fiscal stimulus package in the United States unleash pent-up business activity and job creation, the Organization for Economic Cooperation and Development said on Monday.

    But the pace of the recovery still hinges on vaccination programs and the ability of governments to beat back new variants of the virus, raising fresh risks even as economic activity starts to rev back up in most parts of the world, the organization said in its latest economic outlook.

    The organization sharply raised its forecast for global growth to 5.8 percent in 2021, up from a 4.2 percent projection in December. It said the pace of expansion would cool to 4.5 percent in 2022 as government support programs unwind.

    A government stimulus-led upturn in the United States, where President Biden is betting on a $2 trillion infrastructure package to end the effects of the pandemic faster, has helped improve the global outlook, the group said. China continues to experience the world’s strongest rebound, also lifting the global outlook.

    In Europe, which has been lagging the United States in a recovery, an acceleration of vaccination programs has allowed governments to begin lifting restrictions on activities, speeding up what had been a slow economic reopening.

    The opposite is true for many emerging-market economies that are suffering from slow distribution of vaccines, new outbreaks of Covid-19 and economically limiting containment measures, dampening prospects for a quick recovery.

    India, which has suffered a deadly resurgence of the virus, is likely to face economic struggles as a result and a slower return to prepandemic growth levels until the impact of the virus fades, the organization said.

    It estimated the economy in the United States would grow 6.9 percent in 2021; in China, 8.5 percent; in the euro area, 4.3 percent; in Britain, 7.2 percent; in Argentina, 6.1 percent; and in India, 9.9 percent….

  8. ltr


    May 31, 2021

    Nearly 640 mln COVID-19 vaccine doses administered across China

    BEIJING — Over 639 million doses of COVID-19 vaccines had been administered across China as of Sunday, a Chinese health official said Monday.

    On average, 12.47 million doses of COVID-19 vaccines were administered across the country each day in May, said Mi Feng, a spokesperson for the National Health Commission, at a press conference, adding that the figure is 2.58 times that of April.

    Mi also noted that China has provided 300 million doses of COVID-19 vaccines to the world.

    [ About 20 million doses of 5 domestically produced vaccines are now being administered daily in China. ]

    1. pgl

      By now your credibility on this issue has dropped to zero because you have not once addressed the efficacy issue. So let me note that even the Chinese government is finally admitting that patients may soon need a 3rd dose. As such all your rosy numbers need to be divided by three.


      I would suggest you be more forthcoming on this issue but someone I suspect my plea will be ignored by you.

      1. Jacques

        I would like to know why links to Chinese state new sources are not eliminated during moderation. Pure propaganda has no place on legitimate websites.

    1. Moses Herzog

      So underrated. Barbeau said she thought it was very close to getting traction ratings-wise when they cancelled it. I always think of the ratings of the first 4 episodes of Seinfeld when they cancel quality shows. It was a single producer who stuck his neck out financially for the show. A lot of people find Depression Era stuff to be “drab”. Maybe that was the problem?? My Dad grew up in that time frame. People now cannot grasp how important carnivals, circuses, and country fairs were then. They’re too consumed with “important things” like if Biffy the elephant got hit with a bamboo stick twice in the last 5 years. Kids would still enjoy circuses now (with elephants) if they offered them now–the same way children STILL gravitate to public parks. But life is no fun for some people, until they can ruin everyone else’s fun.

  9. ltr


    May 30, 2021

    China’s Tianzhou-2 cargo spacecraft docks with space station core module at record-breaking speed, delivers supply for upcoming crewed flight mission
    By Deng Xiaoci and Fan Anqi

    China has not only successfully launched its Tianzhou-2 cargo spacecraft for the country’s first Tianhe space station core cabin supply mission on Saturday, but also tested and performed an ultra-fast yet smooth automatic docking of the cargo ship with the Tianhe module – within only eight hours after launch – early on Sunday, achieving yet another spectacular milestone during the country’s recent epic advancements on almost all fronts in the space sector within a month.

    The Tianzhou-2 mission has seen a substantial improvement in the spacecraft’s fast docking capability, and will be adopted in the upcoming Shenzhou-12 manned mission, shortening astronauts’ stay on the craft from two days to only six hours: insiders.

    The fruitful Tianzhou-2 flight mission came after the launch of the first section of the country’s space station, the Tianhe core cabin on April 29, the country’s first interplanetary mission Tianwen-1’s soft landing on Mars on May 16, and the Zhurong Mars rover embarking on its first journey on the Red Planet on May 22….

    [ The countdown has now begun to man the new international space station this June. ]

      1. Moses Herzog

        This is one of the few things I think China does have the right to be proud of. You know I find “ltr” to be pretty annoying at times, but I try not to just be reflexive about it. But, after the 10,000th line of propaganda BS, it almost becomes second nature to want to shoot him down. But on the science (legit) and space exploration, I think this is something that can be applauded. But this is like the crying wolf deal er something, you know, because then this gets mixed in with the garbage and the points that are a point of excellence for China, you’re just numb to all the BS at that stage. It just all becomes white noise. Which is the problem with an entire brainwashed populace. It becomes like MAGA and QAnon where you wouldn’t even be listening inside of that one single moment they finally said the one intelligent thing after 999 blatherings.

        1. Barkley Rosser

          Yes, pgl, you know how it is. Moses almost manages to say something intelligent about comments by ltr, only to completely make himself (or should I say “herself”) look completely absurd by continuing to insist on calling ltr “him,” Moses having so ably made it clear that ltr is so clearly of the male persuasion. Not showing any sexism here, he is, not a whiff of it at all. This acuity on his part is clearly due to all that time he spent in China, which makes him especially capable of determining gender of anybody posting here regularly on China. We must all be so grateful for this.

    1. Baffling

      This is a great leap forward. Only a couple of decades behind other nations achievements in space stations. Glad ylthey finally got there.

      1. Barkley Rosser

        It is possible that ltr will have a serious breakthrough to report out of China. I have just seen on a not-totally-reliable internet source, thus waiting confirmation from more credible sources, that the PRC may have achieved some new high level of containment of a nuclear fusion process. Of course we have had overblown report after exaggerated report now for decades about breakthroughs on nuclear fusion. But if indeed we get one that leads to a commercially usable energy source, this would be of very great importance.

    2. ltr

      That Congress in April 2011 stopped Chinese participation in programs of “our” International Space Station and stopped Chinese work with NASA is especially important to understand in that in May 2021, China has landed conducted several moon explorations, an exploration of Mars is underway and has an independent international space station.

      1. baffling

        “May 2021, China has landed conducted several moon explorations, an exploration of Mars is underway”
        the usa put a man on the moon in 1969 (not just an exploration with robots). the soviet union had a soft landing on mars in 1971. the usa sent the viking landers in 1976, and accomplished the feat of longer term operations. this was nearly 50 years ago, ltr. please place your bragging into perspective. it is great that china is making advancements. it is misleading to try to claim china is somehow conducting unprecedented feats of technology. these exploits were completed 5 decades ago.

    3. macroduck

      Funny, I was not aware that don’t speed was in any way an important metric. I mean, you wouldn’t want to spend days and days rocking, but setting speed records is trivial. Almost like some government has an inferiority complex and is looking for things to brag about. “The other guy scored more points, but I scored my very few points really fast. Yay for me.” It’s like kiddy sports, where everybody gets a ribbon just for showing up.

      But then, when a country breaks it’s pledges about Hong Kong and tries to keep the people of Taiwan from getting Covid vaccines from Europe – vaccines that work much better than those from China – I guess it’s hard to find anything legitimate to brag about.

  10. pgl

    Catching up on some reading with respect to the hot issue of how we should tax multinationals, I came across a 3 hour hearing on March 25, 2021. The opening remarks of the Democratic chair and his Republican counterpart had incredibly divergent views on what TCJA did and did not view. The four witnesses also had very different views on a number of things.


  11. pgl

    The conservatives at this Senate hearing defended TCJA on the grounds that its strange international provisions (GILTI, FDII, etc) made up for the reduction in the statutory rate. But the first witness noted how corporate taxes fell from 2% of GDP to 1% of GDP. Laura Clausing has also offered up estimates of transfer pricing abuse that some of the other witnesses criticized. But check out this graph of US corporate profits as a percent of GDP over time to see where progressives are coming from:



    1. Willie

      We don’t have any conservatives any more. We have “conservatives” who are reactionaries.

  12. ltr


    May 31, 2021

    Main structure of world’s 2nd largest hydropower station to finish on Monday, operations start on July 1

    Baihetan Hydropower Station, the world’s second largest after the Three Gorges Dam, is expected to have its last reservoir completed on Monday in Southwest China.

    The station, with a total installed capacity of 16 million kilowatts, is expected to generate more than 62 billion kilowatt-hours of electricity per year, which would reduce carbon dioxide emission by about 51.6 million tons, according to experts.

    The Baihetan station is located downstream of the Jinsha River, in the upper section of the Yangtze River, in Ningnan county of Southwest China’s Sichuan Province, and Qiaojia county in neighboring Yunnan Province.

    The construction of the main body of the station is expected to be finished on Monday. Its first unit is scheduled to start operations on July 1. The station will be in full operation by the end of 2022.

    The Baihetan hydropower station is the world’s first to have a power unit with a capacity of 1 million kilowatts with 111 revolutions per minute. The station is expected to be China’s second largest hydropower project after the Three Gorges Dam when completed.

    The Three Gorges Dam, generated 103.1 billion kilowatt-hours of electricity in 2020 as of Sunday morning, breaking the world record for annual power generation volume by a single hydropower station.

    When asked how the Baihetan station is compared with similar stations in other countries, Wang Xiaojun, an engineer of the project, told media that “there is no better station around the world.”

    A video went viral on Sunday on China’s social media platforms. In the video, a coin stands firmly on a board, under which an operating unit of the Baihetan Hydropower Station is spinning at 111 revolutions per minute, but the coin did not fall down, showing the stability of the unit, Wang said.

    When asked if a coin would fall with the vibrations of the spinning generator as in plants overseas, Wang said that “the question is that other countries don’t have similar generating units.” …

    1. ltr


      May 30, 2021

      Carbon-trading program may give China pricing power

      With China’s national-level carbon trading program ready to start by the end of June, domestic and foreign experts put high hopes on China’s role in achieving carbon neutrality worldwide. China is also expected to gain strong pricing power, given its unprecedented efforts to cut carbon emissions, experts said on Sunday.

      “Carbon could become a new currency, with China creating the terms, the standards and the pricing,” said Deborah Lehr, vice chairman and executive director of Paulson Institute, at the International Finance Forum 2021 Spring Meetings held in Beijing on Sunday via video.

      China will be at the heart of the climate business boom, not only because the scale of its emissions creates opportunity but also because it’s becoming a leader in innovative green finance as well in green technology, she said.

      Goldman Sachs has estimated that there is a $16 trillion opportunity for clean technology infrastructure investments in China’s potential path to net zero by 2060. This could create up to 40 million jobs and drive economic growth.

      China has started to open further to foreign firms in environmental goods and services, and the launch of China’s carbon exchange will also create new opportunities, according to Lehr.

      The country’s national-level carbon emissions trading system will be launched by the end of June as scheduled, Liu Youbin, spokesperson for the Ministry of Ecology and Environment, told a press conference on Wednesday.

      The volume of carbon emissions covered by the trading market will hit more than 4 billion tons, making it the world’s largest carbon emissions trading market, Liu said.

      Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times on Sunday that if China has carbon emissions pricing power, it will better accommodate domestic economic development while also contributing to its ambitious goal of net-zero emissions by 2060….

      1. macroduck

        So the important thing is not so much a reduction in carbon emissions, but instead that China gain “pricing power”, that China be in a position to extend extr-territorial control. Very telling.

        ltr, you do understand that the braggadocios stuff you post here from Chinese news sources is meant for China’s domestic audience, right? It is pro-Chinese in a sort of jingoist way. It is transparently propagandistic to those not inside China’s jingoism bubble.

        1. pgl

          China’s population is 4 times ours so one would hope that they would make a few efforts at climate change.

          Seriously – ltr has to be on the payroll of the PRC. Maybe Menzie should charge them lease payments for the space this blog devotes to her whatever.

      2. Barkley Rosser

        Wow! Carbon in China will be a “new currency”? Does this mean it will become more important for world finance than that other new currency being developed in China, namely the digital yuan/renmimbi???

  13. macroduck

    There is a big short-term vs medium-term problem here. The labor market is still spotty, creating bottlenecks. A new school year with most students in classrooms may clear up questions of works availability. Unless and until it does, estimates of potential output will be iffy, as will output-gap based inflation estimates. Point estimates should be treated with greater caution than usual.

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