Wednesday, September 14, 2016

Review of FOMC Projections

by Bill McBride on 9/14/2016 02:49:00 PM

Almost all analysts are expecting no change in Fed policy at the September FOMC meeting next week.

So the focus this month will probably be on the wording of the statement, any changes to the projections, and on the press conference.

Here are the June FOMC projections.  Since the release of those projections, Q2 GDP was reported at a 1.1% annual rate, after increasing 0.8% in Q1.

Currently GDP is tracking around 3.3% annualized in Q3.  It seems likely the FOMC will revise down GDP for 2016.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in
Real GDP1
201620172018
Jun 2016 1.9 to 2.01.9 to 2.21.8 to 2.1
Mar 2016 2.1 to 2.32.0 to 2.31.8 to 2.1
1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 4.9% in August, so the unemployment rate projection for Q4 2016 will probably be mostly unchanged.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment
Rate2
201620172018
Jun 2016 4.6 to 4.84.5 to 4.74.4 to 4.8
Mar 2016 4.6 to 4.84.5 to 4.74.5 to 5.0
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of July, PCE inflation was up only 0.8% from July 2015.  

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE
Inflation1
201620172018
Jun 2016 1.3 to 1.71.7 to 2.01.9 to 2.0
Mar 2016 1.0 to 1.61.7 to 2.01.9 to 2.0

PCE core inflation was up 1.6% in July year-over-year.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core
Inflation1
201620172018
Jun 2016 1.6 to 1.81.7 to 2.01.9 to 2.0
Mar 2016 1.4 to 1.71.7 to 2.01.9 to 2.0

With the recent stabilization in oil prices, PCE inflation might pick up a little.  But overall PCE core inflation is still below the FOMC target.

The FOMC will probably take no action at the meeting next week, and wait to see if employment gains continue - and inflation picks up.