Sunday, June 07, 2020

FOMC Preview

by Calculated Risk on 6/07/2020 10:49:00 AM

The FOMC will meet this week on Tuesday and Wednesday, and expectations are for no change in policy. Fed Chair Powell will hold a press briefing on Wednesday and will likely reiterate that the Fed will do whatever it takes, and suggest that more fiscal disaster relief is needed.

The FOMC is expected to release updated projections at the meeting this week (this is not certain).  The FOMC didn't release projections in March due to economic uncertainty related to the impact of COVID-19.

For review, here are the last FOMC projections released in December.   Since the last projections were released, the economic world has changed dramatically - coming to a sudden stop in March - and the projections for 2020 and 2021 will change significantly.

GDP decreased at a 5.0% annual rate in Q1, and most forecasts are for an annual rate decline of 30% to 40% in Q2 - and for GDP to decline in 2020.

The course of the economy will depend on the course of the pandemic, so the FOMC has to factor in their expectations of when the pandemic will subside and end (and no one knows at this time).

GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1
Projection Date202020212022
Dec 20192.0 to 2.21.8 to 2.01.8 to 2.0
June 2020NANANA
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 13.3% in May.   The FOMC will revise up their Q4 2020 unemployment forecast significantly.   The FOMC projections for the unemployment rate at the end of 2020, 2021 and 2022 will be interesting.

Note that the unemployment rate doesn't remotely capture the economic damage to the labor market.  Not only were there 15+ million more people unemployed in May than at the end of 2019, but another 6+ million have left the labor force.   And close to 50% of households have seen a decline in income.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2
Projection Date202020212022
Dec 20193.5 to 3.73.5 to 3.93.5 to 4.0
June 2020NANANA
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.

As of April 2020, PCE inflation was up 0.5% from April 2019.   With the economic stop in March, PCE inflation will be revised down significantly for Q4 2020.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1
Projection Date202020212022
Dec 20191.8 to 1.92.0 to 2.12.0 to 2.2
June 2020NANANA

PCE core inflation was up 1.0% in April year-over-year.    Core inflation will also be revised down for Q4 2020.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1
Projection Date202020212022
Dec 20191.9 to 2.02.0 to 2.12.0 to 2.2
June 2020NANANA