In Depth Analysis: CalculatedRisk Newsletter on Real Estate (Ad Free) Read it here.

Wednesday, January 25, 2012

FOMC: Sets 2% Inflation Target, January Summary of Economic Projections (SEP) and Press Briefing

by Calculated Risk on 1/25/2012 02:00:00 PM

Earlier the FOMC released a statement for the January meeting.

Here are the longer run projections

The Committee judges that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate. ... FOMC participants' estimates of the longer-run normal rate of unemployment had a central tendency of 5.2 percent to 6.0 percent.
Here are the updated forecasts from the January meeting. The key details are below the video.

Fed Chairman Ben Bernanke will hold a press briefing at 2:15 PM.

Appropriate Timing of Policy Firming Click on graph for larger image.

"The shaded bars represent the number of FOMC participants who project that the initial increase in the target federal funds rate (from its current range of 0 to ¼ percent) would appropriately occur in the specified calendar year."

Most participants project the first rate hike will appropriately occur in 2014 or later.

Appropriate Pace of Policy Firming"The dots represent individual policymakers’ projections of the appropriate federal funds rate target at the end of each of the next several years and in the longer run. Each dot in that chart represents one policymaker’s projection."

Most participants think the Fed Funds rate will be in the current range into 2014. Then there is some disagreement.

GDP projections were revised down.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1201220132014
January 2012 Projections2.2 to 2.72.8 to 3.23.3 to 4.0
November 2011 Projections2.5 to 2.93.0 to 3.53.0 to 3.9
1 Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

Unemployment rate projections were also revised down.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2201220132014
January 2012 Projections8.2 to 8.57.4 to 8.16.7 to 7.6
November 2011 Projections8.5 to 8.77.8 to 8.26.8 to 7.7
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

And inflation projections were revised down.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1201220132014
January 2012 Projections1.4 to 1.81.4 to 2.01.6 to 2.0
November 2011 Projections1.4 to 2.01.5 to 2.01.5 to 2.0

Here is core inflation:

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1201220132014
January 2012 Projections1.5 to 1.81.5 to 2.01.6 to 2.0
November 2011 Projections1.5 to 2.01.4 to 1.91.5 to 2.0

If the economy under performs or even tracks the November projections, QE3 would seem likely at either of the two day meetings in April or June. Some have argued that QE3 could happen sooner, perhaps at the March meeting. Based on these projections, QE3 is very likely.