Sunday, January 26, 2020

FOMC Preview

by Calculated Risk on 1/26/2020 12:09:00 PM

Expectations are there will be no change to policy when the FOMC meets this week.  Also there should be minimal changes to the FOMC statement, and Fed Chair Powell will mostly repeat his comments from the December meeting.

There should be no surprises.

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

"The FOMC is set to keep the target range for the funds rate on hold at 1.5-1.75% at the January meeting ... We expect minimal changes to the statement, and for the policy guidance section to remain unchanged. … Economic conditions have changed little on net since the FOMC met in December, while financial conditions have eased significantly further. … Beyond the January meeting, we see a high bar for policy moves in either direction, and we expect the funds rate to remain unchanged in 2020.”
For review, here are the December FOMC projections.  In general the data has been close to expectations, suggesting no change in policy at this meeting.

Q1 2019 real GDP growth was at 3.1% annualized, Q2 at 2.0% and Q3 at 2.1%. Currently the consensus is for 2.1% in Q4.   So 2019 was about as expected.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in
Real GDP1
2019202020212022
Dec 20192.1 to 2.22.0 to 2.21.8 to 2.01.8 to 2.0
Sept 20192.1 to 2.31.8 to 2.11.8 to 2.0NA
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 December.  So the unemployment rate projection for Q4 2019 was correct.  Note: My guess is the unemployment rate will decrease further in 2020, and I expect the FOMC to revised down unemployment projections for 2020 later this year.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment
Rate2
2019202020212022
Dec 20193.5 to 3.63.5 to 3.73.5 to 3.93.5 to 4.0
Sept 20193.6 to 3.73.6 to 3.83.6 to 3.9NA
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of November 2019, PCE inflation was up 1.5% from November 2018 So PCE inflation projections were close.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE
Inflation1
2019202020212022
Dec 20191.4 to 1.51.8 to 1.92.0 to 2.12.0 to 2.2
Sept 20191.5 to 1.61.9 to 2.02.0 NA

PCE core inflation was up 1.6% in November year-over-year. So Core PCE inflation was revised also close to expectations.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core
Inflation1
2019202020212022
Dec 20191.6 to 1.71.9 to 2.02.0 to 2.12.0 to 2.2
Sept 20191.7 to 1.81.9 to 2.02.0NA