Tuesday, September 21, 2010

FOMC Preview

by Bill McBride on 9/21/2010 12:25:00 PM

In general I think little will change in the FOMC statement this month.

Update: The FOMC (and staff) will present their updated forecasts in November, but the forecasts will not be available until the minutes are released. Since the previous forecasts were too optimistic (see table below1), it is very likely their new forecasts will be are lower - but it is unclear if this will be mentioned in the statement today.

In a research note yesterday, Goldman Sachs suggested the following four possibilities (from "dovish" to "hawkish"):

1. No substantive change in the policy statement.

2. Recognition of a weaker economic outlook, but without an explicit signal that renewed unconventional easing is under consideration.

3. An explicit signal that renewed easing is under consideration.

4. An announcement of renewed easing.
Goldman's view is the focus would be on #2 and #3. I think #4 is off the table for now, and #1 is still a possibility.

1Here are the forecasts from the June 22-23, 2010 (and May 9th) FOMC meeting. The Fed revised down their forecasts in June, but they were still too optimistic:

Economic projections of Federal Reserve Governors and Reserve Bank presidents
 201020112012
Change in Real GDP3.0% to 3.5%3.5% to 4.2%3.5% to 4.5%
  April projection3.2% to 3.7%3.4% to 4.5%3.5% to 4.5%
Unemployment Rate9.2% to 9.5%8.3% to 8.7%7.1% to 7.5%
  April projection9.1% to 9.5%8.1% to 8.5%6.6% to 7.5%
PCE Inflation   1.0% to 1.1%1.1% to 1.6%1.0% to 1.7%
  April projection1.2% to 1.5%1.1% to 1.9%1.2% to 2.0%