Monday, October 28, 2019

FOMC Preview

by Calculated Risk on 10/28/2019 02:43:00 PM

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

Here are some comments from Goldman Sachs chief economist Jan Hatzius:

We expect the FOMC to deliver a third and final 25bp rate cut at the upcoming meeting. … We believe the mixed growth data since the last meeting more closely resembles the Committee’s baseline forecast than the downside scenarios under discussion. … We expect a somewhat hawkish rewording, with “act as appropriate to sustain the expansion” replaced by a reference to recent easing and the less committal “will act as needed to promote its objectives.”
For review, here are the September FOMC projections.  In general the data has been close to expectations, suggesting a rate cut at this meeting (since the projections mostly assume a rate cut).

Everyone will be looking for hints of a fourth rate cut - or if the Fed thinks this is the end of the "mid-cycle" rate cuts as Hatzius thinks.

Q1 real GDP growth was at 3.1% annualized, Q2 at 2.0%, and Q3 is projected to be around 1.7%.  So GDP is probably close to expectations.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in
Real GDP1
201920202021
Sept 20192.1 to 2.31.8 to 2.11.8 to 2.0
Jun 20192.0 to 2.21.8 to 2.21.8 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 3.5% in September.  So the unemployment rate is lower than projected for Q4.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment
Rate2
201920202021
Sept 20193.6 to 3.73.6 to 3.83.6 to 3.9
Jun 20193.6 to 3.73.5 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.

As of August 2019, PCE inflation was up 1.4% from August 2018 So PCE inflation is on the low end of projections.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE
Inflation1
201920202021
Sept 20191.5 to 1.61.9 to 2.02.0 
Jun 20191.5 to 1.61.9 to 2.02.0 to 2.1

PCE core inflation was up 1.8% in August year-over-year. So Core PCE inflation is at the top end of the projected range.

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