FOMC Preview

The consensus is that the Fed will increase the Fed Funds Rate 25bps at the meeting this week, however the tone of the statement and press conference will likely be more dovish.   There might be some dovish dissent at this meeting.

Observers will be looking for signs of a pause in the rate hikes - possibly even in Q1 - and also for a reduction in the number of projected hikes in 2019.

Here are the September FOMC projections.

Current projections for Q4 GDP are in mid-to-high 2% range. GDP increased at a 2.2% real annual rate in Q1, 4.2% in Q2, and 3.5% in Q3.   The FOMC is projecting Q4 over the previous Q4¹, and using the current projections for Q4, this projects to around 3.1% to 3.2% for 2018.

However, most analysts expect growth to slow more than expected in 2019, and the FOMC might revise down projections for GDP in 2019.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2018	2019	2020
Sep 2018	3.0 to 3.2	2.4 to 2.7	1.8 to 2.1
Jun 2018	2.7 to 3.0	2.2 to 2.6	1.8 to 2.0

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 3.7% in November. So the unemployment rate projection for 2018 will probably be unchanged.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2018	2019	2020
Sep 2018	3.7	3.4 to 3.6	3.4 to 3.8
Jun 2018	3.6 to 3.7	3.4 to 3.5	3.4 to 3.7

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

As of October, PCE inflation was up 2.0% from October 2017.  This is at the bottom of the projected range.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2018	2019	2020
Sep 2018	2.0 to 2.1	2.0 to 2.1	2.1 to 2.2
Jun 2018	2.0 to 2.1	2.0 to 2.2	2.1 to 2.2

PCE core inflation was up 1.8% in October year-over-year. Core PCE inflation might be revised down  for 2018.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2018	2019	2020
Sep 2018	1.9 to 2.0	2.0 to 2.1	2.1 to 2.2
Jun 2018	1.9 to 2.0	2.0 to 2.2	2.1 to 2.2

In general the data has been close, but somewhat softer, than the FOMC's September projections.