Saturday, June 10, 2017

Goldman: FOMC Preview

by Bill McBride on 6/10/2017 05:41:00 PM

A few brief excerpts from a Goldman Sachs research note:

Another rate increase from the FOMC next week is now extremely likely ...

The unemployment rate has fallen 0.4pp since the March meeting and our current activity indicator and real GDP estimates signal that above-trend output growth will produce further labor market improvement. But the year-over-year core PCE inflation is now 0.2pp lower than at the March meeting.

... The statement will likely characterize economic activity as picking up but recognize that inflation slowed since earlier this year. ...

The press conference should provide some clarity on whether the next tightening step after June will be balance sheet normalization or a third funds rate hike.
CR Note: Almost all analysts expect a rate hike this week, even though inflation has fallen further below the Fed's target. A few key questions are: Does the FOMC see the dip in inflation as transitory? Will the Fed keep tightening if inflation stays below target? Will the next tightening step be another rate hike or balance sheet normalization?