Wednesday, December 12, 2012

FOMC Projections and Bernanke Press Conference

by Bill McBride on 12/12/2012 02:00:00 PM

Here are the updated projections from the FOMC meeting.

Fed Chairman Ben Bernanke's press conference starts at 2:15 PM ET. Here is the video stream.


Live stream by Ustream

The FOMC is no longer presenting a "date-based guidance" for policy, and instead changed to announcing thresholds for raising the Fed Funds rate based on the unemployment rate and inflation. How this will work will be a key topic of the press conference today. Currently the thresholds are holding rates low "at least" until the unemployment rate is below 6 1/2%, and the inflation outlook "between one and two years ahead" is no more than 2 1/2%, as long as inflation expectations remain "well anchored" - this means inflation could increase to 3% or 4% without an increase in rates, as long as expectations remain anchored and the outlook one to two years ahead is at or below 2 1/2%. This is a significant change in policy guidance.

Another key question is: Which will come first, a rate hike or stopping or slowing QE3 (the FOMC will expand QE3 to $85 billion per month in January)? 

The four tables below show the FOMC December meeting projections, and the September projections to show the change.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1201220132014 2015
Dec 2012 Projections1.7 to 1.82.3 to 3.03.0 to 3.53.0 to 3.7
Sept 2012 Projections1.7 to 2.02.5 to 3.03.0 to 3.83.0 to 3.8
1 Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

GDP projections have been revised down slightly for 2013.

The unemployment rate was at 7.7 in November, and the projection for 2012 has been revised down. The projection for 2014 was revised down too.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate22012201320142015
Dec 2012 Projections7.8 to 7.97.4 to 7.7 6.8 to 7.36.0 to 6.6
Sept 2012 Projections8.0 to 8.27.6 to 7.96.7 to 7.36.0 to 6.6
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

The forecasts for overall and core inflation show the FOMC is still not concerned about inflation.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation12012201320142015
Dec 2012 Projections1.6 to 1.71.3 to 2.01.5 to 2.01.7 to 2.0
Sept 2012 Projections1.7 to 1.81.6 to 2.01.6 to 2.01.8 to 2.0

Here is core inflation:

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation12012201320142015
Dec 2012 Projections1.6 to 1.71.6 to 1.91.6 to 2.01.8 to 2.0
Sept 2012 Projections1.7 to 1.91.7 to 2.01.8 to 2.01.9 to 2.0

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