Data suggest that the economy is gradually improving, albeit with a bit less momentum than previously projected. Furthermore, conditions continue to fare moderately worse in the Twelfth Federal Reserve District than in the nation as a whole, with unemployment rates in many District states remaining well above the national unemployment rate. As a result of weaker data, higher oil prices, and expectations of slightly more fiscal stringency, we have lowered our national real GDP growth forecast slightly to about 3½% this year and 4¼% in 2012 on a fourth-quarter-to-fourth-quarter basis. In line with this, we project the unemployment rate to decline slowly to about 8½% at the end of this year, and to 7½% at the end of 2012. Although we anticipate recent commodity and energy price surges will raise headline inflation temporarily, we foresee relatively little pass-through to core inflation in 2011 and 2012.
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