Friday, June 12, 2015

Goldman Sachs: FOMC Preview

by Bill McBride on 6/12/2015 10:22:00 PM

A few excerpts from a note by Goldman Sachs economist Kris Dawsey: June FOMC Preview: On Track

... the signal from the June FOMC meeting will be especially important. The overarching message from the meeting will probably be that September remains the Committee’s baseline expectation for the start of monetary tightening, reflecting cumulative progress in the recovery over the last six years. While September remains our baseline as well, we think that the FOMC will want to preserve optionality at the June meeting, and there is still a significant probability that the hiking cycle will not begin until December or later.

US economic activity has picked up since the April FOMC meeting, providing reassurance that the Q1 slowdown was at least in large part a temporary speedbump. ... We anticipate the assessment of economic activity in the FOMC statement will be somewhat brighter, with no changes to the remaining paragraphs. ...

The June Summary of Economic Projections (SEP) will probably show several changes. GDP growth for 2015 will almost certainly be marked down ... The unemployment rate path will likely be slightly higher in the near term, while long-term views on the natural rate may come down further. Participants’ assessment of the inflation outlook will probably be little changed.

In her post-meeting press conference, Chair Yellen will likely continue to emphasize the data-dependent nature of the Committee’s decision-making, highlighting the need for further improvement in the labor market and reasonable confidence that inflation will be moving to the Fed’s target in the medium term. In short, we expect her remarks to be very consistent with the FOMC statement.