by Calculated Risk on 6/20/2012 06:20:00 PM

At the January press conference, Fed Chairman Ben Bernanke hinted at further accommodation (QE3) based on incoming data. Then the January and February employment reports were above expectations, and inflation also picked up a little due to the surge in oil and gasoline prices.

In April, based on the stronger data, the FOMC participants revised up their projections for GDP and inflation, and revised down their projections for the unemployment rate - and QE3 was put on hold.

Compare the current projections released today (below) not just with the April projections, but with the January projections. GDP is below the projections in January, and inflation is also below the January projection.

Only the unemployment rate is slightly improved from the January projections - and then only for 2012 - 2013 and 2014 are now worse. As Tim Duy wrote, the projections are "shocking".

[T]his is a significant downward revision to the forecast for not just this year, but next year as well. Moreover, they expect no meaningful progress on the unemployment rate and the PCE inflation forecast remains centered well below 2%.

In the press conference today, Bernanke made it clear that further accommodation is very likely if employment indicators don't improve soon. He also pointed out that the Fed can't do any more "twisting" because of the lack of short duration securities.

And that strongly suggests QE3 following the two day meeting ending August 1st.

Also the FOMC statement was changed to "The Committee is prepared to take further action as appropriate ..." from "The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate ...". A little more aggressive.

One of the reasons I thought QE3 was unlikely today was the lack of foreshadowing from the Fed. Now the markets are prepared - and unless employment indicators pick up significantly, QE3 seems very likely. (Note: There is only one employment report between now and the next FOMC meeting - the June report on July 6th. Otherwise the Fed will rely on weekly unemployment claims and other indicators).

It is possible the Fed will wait until September (depending on incoming data), but right now I think QE3 will arrive on August 1st.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2012	2013	2014
June 2012 Projections	1.9 to 2.4	2.2 to 2.8	3.0 to 3.5
April 2012 Projections	2.4 to 2.9	2.7 to 3.1	3.1 to 3.6
January 2012 Projections	2.2 to 2.7	2.8 to 3.2	3.3 to 4.0

¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2012	2013	2014
June 2012 Projections	8.0 to 8.2	7.5 to 8.0	7.0 to 7.7
April 2012 Projections	7.8 to 8.0	7.3 to 7.7	6.7 to 7.4
January 2012 Projections	8.2 to 8.5	7.4 to 8.1	6.7 to 7.6

² Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated. 

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2012	2013	2014
June 2012 Projections	1.2 to 1.7	1.5 to 2.0	1.5 to 2.0
April 2012 Projections	1.9 to 2.0	1.6 to 2.0	1.7 to 2.0
January 2012 Projections	1.4 to 1.8	1.4 to 2.0	1.6 to 2.0