by Calculated Risk on 9/14/2014 08:15:00 AM

The FOMC will meet on Tuesday and Wednesday. The FOMC statement will be released Wednesday at 2:00 PM ET.  Fed Chair Janet Yellen will hold a press conference at 2:30 PM.

What will know for this meeting:
• The FOMC will not raise rates. D'oh!

• The FOMC will reduce asset purchases (aka QE3) by $10 billion to $15 billion for the month of October. Note: the FOMC is expected to end QE3 at the October 29th meeting, so the October purchases are likely the final $15 billion for QE3.

• During the press conference, Dr. Yellen will break into a happy dance when asked about her comment in June that inflation data was "noisy". In June she said:

"I think recent readings on CPI index have been a bit on the high side but I think the data we're seeing is noisy. Broadly speaking inflation is evolving in line with the committee's expectations."

OK, no dance, but Yellen was correct.

What we don't know for this meeting:
• What changes the FOMC will make to the statement. Here is the July statement.  It is possible the sentence about not raising rates for a "considerable time" after the end of QE3 will be modified or removed. Here is the sentence:

"The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored."

Obviously this sentence will have to be changed soon, since the asset purchase program is expected to end next month.

• Will the FOMC or Dr. Yellen indicate the first rate hike might happen before mid-year 2015? In March, Yellen said:

"[T]he language that we used in the statement is considerable period. So I, you know, this is the kind of term it’s hard to define. But, you know, probably means something on the order of around six months, that type of thing.”

My guess is Yellen will clearly state the first rate hike will not happen for some time, and that the rate hike will be data dependent.

It will also be interesting to see the changes to the FOMC projections.  For review, here are the previous projections.   GDP bounced back sharply in Q2, and is looking solid in Q3, but Q1 was very weak.  It is possible GDP projections for 2014 will be increased slightly.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2014	2015	2016
June 2014 Meeting Projections	2.1 to 2.3	3.0 to 3.2	2.5 to 3.0
Mar 2014 Meeting Projections	2.8 to 3.0	3.0 to 3.2	2.5 to 3.0

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 6.1% in August, so the unemployment rate projection for Q4 2014 will probably be lowered slightly. 

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2014	2015	2016
June 2014 Meeting Projections	6.0 to 6.1	5.4 to 5.7	5.1 to 5.5
Mar 2014 Meeting Projections	6.1 to 6.3	5.6 to 5.9	5.2 to 5.6

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

As of July, PCE inflation was up 1.6% from July 2013, and core inflation was up 1.5%.   Both PCE and core PCE inflation projections will probably be unchanged and will still be below the FOMC's 2% target. 

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2014	2015	2016
June 2014 Meeting Projections	1.5 to 1.7	1.5 to 2.0	1.6 to 2.0
Mar 2014 Meeting Projections	1.5 to 1.6	1.5 to 2.0	1.7 to 2.0

Here are the FOMC's recent core inflation projections:

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2014	2015	2016
June 2014 Meeting Projections	1.5 to 1.6	1.6 to 2.0	1.7 to 2.0
Mar 2014 Meeting Projections	1.4 to 1.6	1.7 to 2.0	1.8 to 2.0