by Calculated Risk on 3/15/2020 08:11:00 AM
Sunday, March 15, 2020
Expectations are that the FOMC will reduce the Fed Funds rate 100bps to a target range of 0 to 1/4 percent at the meeting this week. This is in response to the COVID-19 pandemic.
For review, here are the December FOMC projections. In general the data has been close to expectations, however the economy has come to a sudden stop - and the projections for 2020 will probably change significantly.
Forecast for Q1 GDP have mostly ranged between 1% and 2%, however many sectors will be hard hit in March, and Q1 GDP will probably be close to 0%. It seems likely that GDP in Q2 will be negative, so I expect the FOMC to revise down their 2020 forecasts significantly. They might revise up their 2021 forecasts.
|GDP projections of Federal Reserve Governors and Reserve Bank presidents|
|Dec 2019||2.0 to 2.2||1.8 to 2.0||1.8 to 2.0|
The unemployment rate was at 3.5% in February. With the impact of COVID-19, the unemployment rate will probably increase over the next several months - maybe longer. I expect the FOMC will revise up their Q4 2020 unemployment forecast.
|Unemployment projections of Federal Reserve Governors and Reserve Bank presidents|
|Dec 2019||3.5 to 3.7||3.5 to 3.9||3.5 to 4.0|
As of January 2019, PCE inflation was up 1.7% from January 2019. With the sharp decline in oil prices and the economic stop in March, PCE inflation will probably be revised down for Q4 2020.
|Inflation projections of Federal Reserve Governors and Reserve Bank presidents|
|Dec 2019||1.8 to 1.9||2.0 to 2.1||2.0 to 2.2|
PCE core inflation was up 1.6% in January year-over-year. It seems likely core inflation will also be revised down for Q4 2020.
|Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents|
|Dec 2019||1.9 to 2.0||2.0 to 2.1||2.0 to 2.2|