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Friday, December 09, 2016

Goldman: FOMC Preview

by Calculated Risk on 12/09/2016 05:59:00 PM

A few excerpts from a research piece by Goldman Sachs economists Zach Pandl and Jan Hatzius:

Markets have reacted strongly to the presidential election, and fiscal easing may eventually warrant a quicker pace of rate hikes by the FOMC. However, Fed officials will have few policy details at this stage, and will undoubtedly want to see the first rate increase in a year go off smoothly. Therefore, we look for the committee to offer a mostly steady message next week, and to delay incorporating fiscal policy changes into the outlook until next year.

Fortunately, there is already enough data in hand to make a strong case for a rate increase at the meeting: (1) growth momentum has picked up from earlier this year, (2) spare capacity has diminished further, and (3) inflation news has been mostly encouraging. ...

We therefore expect a unanimous vote for an increase in the funds rate range to 0.50-0.75%. The statement will likely upgrade its description of the risks to the outlook to “balanced” from “roughly balanced”. The committee may adjust its assessment of the policy stance to “moderately accommodative” from “accommodative”, as many officials have already done in their public comments.

In the Summary of Economic Projections, we expect (1) upward revisions to GDP growth, (2) downward revisions to the unemployment rate, including the median estimate of the structural rate, (3) slight upward revisions to headline and core PCE inflation, and (4) unchanged median projections for the funds rate.

In the press conference, look for Chair Yellen to highlight the incoming data and to repeat the committee’s existing outlook that the pace of rate hikes will be gradual. We see little incentive for Yellen to dwell on the uncertain outlook for fiscal policy at this stage.
I'll have more previews this weekend.