RSS Feed by Calculated Risk on 4/25/2021 09:39:00 AM
Sunday, April 25, 2021
FOMC Preview
Expectations are there will be no change to rate policy when the FOMC meets on Tuesday and Wednesday this week.
Here are some comments from Goldman Sachs economists:
"[W]e expect the April FOMC statement to feature a more upbeat description of recent economic activity. But beyond that, next week’s meeting should be uneventful. ...We expect the FOMC to start hinting at tapering in the second half of this year and to begin tapering in early 2022. Our working assumption is that the pace of tapering will be $15bn per meeting, in which case it would take eight meetings or one year to complete."And from Merrill Lynch economists:
emphasis added
At the April FOMC meeting, we expect Chair Powell and the FOMC to give a more positive view of the economy but reiterate that risks remain from the virus and further progress is needed before a shift in policy.No projections will be released at this meeting. However, for review, here are the March FOMC projections.
Wall Street forecasts are for GDP to increase at a 6.5% annual rate in Q1 (to be released this coming Thursday). For the year, from Goldman Sachs projects: "We have raised our GDP forecast to reflect the latest fiscal policy news and now expect 8% growth in 2021 (Q4/Q4) and an unemployment rate of 4% at end-2021". And Merrill Lynch expects Q4 2021 over Q4 2020 real growth of 7.5%.
So the FOMC projections are still on the low side compared to Wall Street.
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 6.0% in March.
| GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1 | ||||
|---|---|---|---|---|
| Projection Date | 2021 | 2022 | 2023 | |
| Mar 2021 | 5.8 to 6.6 | 3.0 to 3.8 | 2.0 to 2.5 | |
The unemployment rate was at 6.0% in March.
Note that the unemployment rate doesn't remotely capture the economic damage to the labor market. Not only are there 8.4 million people unemployed, over 4 million people have left the labor force since January 2020. And millions more are being supported by various provisions of the various disaster relief acts.
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.
The decline in the unemployment rate depends on both job growth, and the participation rate. A strong labor market will probably encourage people to return to the labor force, and the improvements in the unemployment rate might be slower than some expect.
As of February 2021, PCE inflation was up 1.6% from February 2020.
PCE core inflation was up 1.4% in February year-over-year.
My guess is core PCE inflation (year-over-year) will increase in 2021, but I think too much inflation will NOT be a concern in 2021. Since we saw negative MoM PCE and core PCE reading in March and April, we should ignore a jump in YoY inflation in March, April and May! There are also supply constraints that will push up prices in the near term, but should be temporary.
| Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2 | ||||
|---|---|---|---|---|
| Projection Date | 2021 | 2022 | 2023 | |
| Mar 2021 | 4.2 to 4.7 | 3.6 to 4.0 | 3.2 to 3.8 | |
The decline in the unemployment rate depends on both job growth, and the participation rate. A strong labor market will probably encourage people to return to the labor force, and the improvements in the unemployment rate might be slower than some expect.
As of February 2021, PCE inflation was up 1.6% from February 2020.
| Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2021 | 2022 | 2023 | |
| Mar 2021 | 2.2 to 2.4 | 1.8 to 2.1 | 2.0 to 2.2 | |
PCE core inflation was up 1.4% in February year-over-year.
| Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2021 | 2022 | 2023 | |
| Mar 2021 | 2.0 to 2.3 | 1.9 to 2.1 | 2.0 to 2.2 | |
My guess is core PCE inflation (year-over-year) will increase in 2021, but I think too much inflation will NOT be a concern in 2021. Since we saw negative MoM PCE and core PCE reading in March and April, we should ignore a jump in YoY inflation in March, April and May! There are also supply constraints that will push up prices in the near term, but should be temporary.
