by Calculated Risk on 4/28/2013 03:09:00 PM

The Federal Open Market Committee (FOMC) is meeting on Tuesday and Wednesday, with the FOMC statement expected to be released at 2:00 PM ET on Wednesday.

Expectations are the FOMC will take no action at this meeting (the FOMC will probably not adjust the size of their purchases of agency mortgage-backed securities and Treasury securities).

Since the most recent meeting in March, the incoming data has been a little weaker, so the FOMC will probably adjust the wording of the statement.   For growth, there will probably be some slight changes to the first sentence in the March statement:

Information received since the Federal Open Market Committee met in January suggests a return to moderate economic growth following a pause late last year. Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated.

Perhaps something like (from the April 2011 statement):

Information received since the Federal Open Market Committee met in March indicates that the economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually.

A key will be to watch the comments on inflation. From the March meeting:

Inflation has been running somewhat below the Committee's longer-run objective, apart from temporary variations that largely reflect fluctuations in energy prices.

Since then, it appears inflation has fallen even more, even excluding energy prices. Core PCE inflation is probably running close to 1.2% year-over-year, and other key measures of inflation are trending down.   This decline in inflation is probably becoming a concern for some FOMC participants.

As a reminder, here are the quarterly projections from the March meeting.  For GDP,  the Q1 advance report released last week probably wouldn't change the outlook.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2013	2014	2015
Mar 2013 Meeting Projections	2.3 to 2.8	2.9 to 3.4	2.9 to 3.7

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.

The unemployment rate was at 7.6% in March, and the outlook for Q4 unemployment probably hasn't changed.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2013	2014	2015
Mar 2013 Meeting Projections	7.3 to 7.5	6.7 to 7.0	6.0 to 6.5

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

For inflation, PCE inflation was up 1.2% year-over-year in Q1, and only increased at a 0.9% annualized rate in Q1.  This is below the FOMC projected range and is probably a growing concern.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2013	2014	2015
Mar 2013 Meeting Projections	1.3 to 1.7	1.5 to 2.0	1.7 to 2.0

The BEA will release core PCE for March tomorrow, and core inflation is also expected to be below the FOMC projections.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2013	2014	2015
Mar 2013 Meeting Projections	1.5 to 1.6	1.7 to 2.0	1.8 to 2.0