Sunday, December 14, 2014

FOMC Preview: Focus on Press Conference, Probably Remove "Considerable Time", Shorter Statement

by Bill McBride on 12/14/2014 11:00:00 AM

On Friday I posted FOMC previews from Goldman Sachs, Merrill Lynch and Nomura economists. Here is what I expect on Wednesday:

• The key focus will be on Fed Chair Janet Yellen's press conference and the FOMC projections.

• There will be some wording changes (see below) and the FOMC statement will probably be a little shorter. In October, the word count declined to 707 words, from 895 in September. Last year, in December 2013, the statement had 867 words. Ten years ago, in December 2004, the statement had only 316 words!

• On the projections, I expect GDP to be revised up slightly for 2014 (to around 2.3%), for the unemployment rate to be revised down to 5.8% for Q4, for inflation to be revised down - and for core inflation to be mostly unchanged.  The key will be changes to the projections for 2015 and beyond.

• Possible wording changes include:

1) some change to the "considerable time" phrase, possibly emphasizing the FOMC will be patient before raising rates.

2) some concern about less inflation, perhaps changing the word "diminished" in the phrase "the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year" to "increased recently". Note: Earlier this year, when inflation picked up a little, Yellen said: "The CPI index has been a bit on the high side, but I think the data that we’re seeing is noisy." So the FOMC might remain patient on inflation again - and Fed Chair Yellen will address this in the press conference.

Note: I don't expect any change to this key sentence: "The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run."

For fun: the over/under on the word count is probably around 700 words, and I'll take the under!