Monday, July 29, 2019

FOMC Preview

by Calculated Risk on 7/29/2019 01:54:00 PM

Expectations are the FOMC will cut the Fed Funds rate 25bp at the meeting this week.

Here are some comment from Professor Tim Duy: It’s Rate Cut Week

Bottom Line: Look for 25bp from the Fed this week with a signal that they are prepared to do more but that they remain data dependent and are not committed to a specific policy path.
And from Goldman Sachs chief economist Jan Hatzius:
The FOMC will almost certainly cut the funds rate on July 31. We expect a 25bp move because virtually all of the signals from the committee point that way. … Growth, employment, and inflation remain close to the Fed’s goals and the data have consistently surprised on the upside since the June FOMC meeting. Meanwhile, financial conditions are already very easy, and our new analysis of the role of credit market sentiment suggests that further easing could raise financial stability concerns down the road. For these reasons, while a September cut remains our baseline, it is far from a done deal.
As Hatzius noted the data "have surprised  on the upside since the June FOMC meeting".  For review are the June FOMC projections.

Q1 real GDP growth was at 3.1% annualized, and Q2 at 2.1%.   So far this year, growth has been above the FOMC projections.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in
Real GDP1
201920202021
Jun 20192.0 to 2.21.8 to 2.01.8 to 2.0
Mar 20191.9 to 2.21.8 to 2.01.7 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 3.7% in June. The unemployment rate projection for Q2 2019 might be a little high.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment
Rate2
201920202021
Jun 20193.6 to 3.73.6 to 3.93.7 to 4.1
Mar 20193.6 to 3.83.5 to 3.93.6 to 4.0
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

The June PCE report will be released tomorrow.  As of May 2019, PCE inflation was up 1.5% from May 2018.  Recent data suggests PCE inflation will increase a little.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE
Inflation1
201920202021
Jun 20191.5 to 1.61.9 to 2.02.0 to 2.1
Mar 20191.8 to 1.92.0 to 2.12.0 to 2.1

PCE core inflation was up 1.6% in May year-over-year. Something to check in the report to be released tomorrow.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core
Inflation1
201920202021
Jun 20191.7 to 1.81.9 to 2.02.0 to 2.1
Mar 20191.9 to 2.02.0 to 2.12.0 to 2.1