FOMC Preview

The consensus is there will no change to policy when the FOMC meets this week. After three rate cuts earlier this year, the FOMC appears to be on hold.

The unemployment rate and inflation projections will probably be revised down slightly. From Goldman Sachs:

[W]e expect only a minor change to the statement’s characterization of the economy, with overall growth still characterized as “moderate” but consumption downgraded to “solid.” We also expect the economic projections to show a lower unemployment rate path (and a slightly lower NAIRU) and lower inflation this year. … Following comments from many Fed officials that policy is now "in a good place," we expect the statement to indicate that the current stance of policy is “likely to remain appropriate.” As a result, we also look for the great majority of the 2020 dots to show an unchanged policy rate.

Here are the September FOMC projections.

Q1 real GDP growth was at 3.1% annualized, Q2 at 2.0% and Q3 at 2.1%. Currently most analysts are projecting around 1% to 2% in Q4. So the GDP projections will probably be little changed.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2019	2020	2021
Sept 2019	2.1 to 2.3	1.8 to 2.1	1.8 to 2.0
Jun 2019	2.0 to 2.2	1.8 to 2.2	1.8 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 November.  The unemployment rate projection for Q4 2019 will probably be revised down slightly.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2019	2020	2021
Sept 2019	3.6 to 3.7	3.6 to 3.8	3.6 to 3.9
Jun 2019	3.6 to 3.7	3.5 to 3.9	3.6 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 October 2019, PCE inflation was up 1.3% from October 2018 So PCE inflation projections will probably be revised down.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2019	2020	2021
Sept 2019	1.5 to 1.6	1.9 to 2.0	2.0
Jun 2019	1.5 to 1.6	1.9 to 2.0	2.0 to 2.1

PCE core inflation was up 1.6% in October year-over-year. So Core PCE inflation will probably be revised down sligthly.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2019	2020	2021
Sept 2019	1.7 to 1.8	1.9 to 2.0	2.0
Jun 2019	1.7 to 1.8	1.9 to 2.0	2.0 to 2.1

In general, both unemployment and inflation are lower than expected.