Monday, March 19, 2018

FOMC Preview

by Bill McBride on 3/19/2018 08:31:00 AM

The consensus is that the Fed will increase the Fed Funds Rate 25bps at the meeting this week, and the tone might be a bit more "hawkish".

Assuming the expected happens, the focus will be on the wording of the statement, the projections, and Fed Chair Jerome Powell's first press conference to try to determine how many rate hikes to expect in 2018 and in 2019.

Here are the December FOMC projections.

Current projections for Q1 GDP range from 1.8% to 2.7%.   There is probably some residual seasonality in the Q1 GDP numbers (pulling down GDP).  So it is too early to revise down 2018 GDP.

At this point, as far as the impact of fiscal stimulus, the Fed has probably incorporated the estimated impact of the tax cuts in their projections for 2018 and beyond.  So the FOMC might increase their projections a little.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in
Real GDP1
201820192020
Dec 2017 2.2 to 2.61.9 to 2.31.7 to 2.0
Sept 2017 2.0 to 2.3 1.7 to 2.11.6 to 2.0
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 4.1% again in February. So the unemployment rate for 2018 will probably be unchanged.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment
Rate2
201820192020
Dec 2017 3.7 to 4.03.6 to 4.03.6 to 4.2
Sept 2017 4.0 to 4.23.9 to 4.44.0 to 4.5
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of January, PCE inflation was up 1.65% from January 2017.  Based on recent PCE readings, PCE inflation might be revised up slightly for 2018.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE
Inflation1
201820192020
Dec 2017 1.7 to 1.92.02.0 to 2.1
Sept 2017 1.8 to 2.02.02.0 to 2.1

PCE core inflation was up 1.5% in January year-over-year. Core PCE inflation might be revised up slightly for 2018.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core
Inflation1
201820192020
Dec 2017 1.7 to 1.92.02.0 to 2.1
Sept 2017 1.8 to 2.02.02.0 to 2.1

In general the data has been consistent with the FOMC's December projections, so any revision will probably be related to the FOMC's view of the impact of policy.