Commission on Government Forecasting and Accountability
Donald Moffitt, Co-Chair
Donne Trotter, Co-Chair
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September 2016 Monthly Briefing
ECONOMY: Fed Postpones Rate Increase Again
Edward H. Boss Jr., Chief Economist

The Federal Open Market Committee voted to keep the federal funds rate in the ¼% to ½% range where it has held almost a year ago when it raised the rate from a 0 to ¼% range. The vote was unanimous. The decision not to change the rate at its latest meeting noted “... that the case for an increase in the federal funds rate has strengthened but decided, for the time being to wait for further evidence of continued progress toward its objectives.” This time three members voted against the no increase action.

As mentioned, its delay in raising the federal funds rate target would be dependent on further progress on meeting its objectives, namely employment, inflation, and real GDP growth.
On employment, progress continues to be made according to recent data and median projections on lowering the unemployment rate. On its objective of 2% inflation, progress also has been made.

The final objective is the change in Real GDP. By this measure there is less evidence that progress is being shown. Indeed, not only has the recovery from the past severe recession been the weakest since at least the end of WWII, but the pace of recovery appears to have slowed in recent quarters with longer run growth now projected at a meager 1.8%. This type of real growth compares with gains of 3% to 4% that prevailed in previous recoveries over the past 20 years.

Near zero interest rates, while perhaps helping to recover from the severe recession, held for a prolonged period has done little to spark sustained improved growth. While the stock market has surged as persons sought a return on their investments, some fear that a bubble could be forming. Others criticize that a gradual normalization of interest rates should have been done sooner. Once again, the latest minutes of the FOMC strongly suggest a movement to another small increase in the federal funds rate before the end of the year as it takes another step toward normalization.

REVENUE: September Revenues Fall Due to Weaker Income Tax Collections
Jim Muschinske, Revenue Manager

Overall base revenues fell $119 million in September as weaker income taxes offset gains from federal sources. September had the same number of receipt days as the previous year.

Gross personal income taxes fell $136 million, $142 million net of refunds, and $144 million when distributions to the Fund for Advancement of Education and Commitment to Human Services Fund are included. Gross corporate income taxes fared even worse proportionately as receipts were down $87 million, or $81 million net of refunds. To reiterate a message from last month, IDoR’s recent ledger conversion has altered some historic receipt patterns--particularly the corporate income tax. As a result, it’s difficult to interpret monthly data as receipts have shown erratic behavior.
Through September, base receipts are down $145 million, reflecting rather underwhelming revenue performance for the first quarter of FY 2017. In particular, both personal and corporate income taxes have disappointed. At least sales tax receipts have grown, albeit at fairly weak levels.