by Calculated Risk on 6/12/2022 09:41:00 AM

Update: From Goldman Sachs chief economist Jan Hatzius

"We have revised our forecast to include 75bp hikes in June and July. This would quickly reset the level of the funds rate at 2.25-2.5%, the FOMC’s median estimate of the neutral rate."
emphasis added

Expectations are the FOMC will announce a 50bp rate increase in the federal funds rate at the meeting this week.

From Merrill Lynch:

"We don’t expect major fireworks at the June FOMC meeting. Chair Powell and the Fed has communicated that they are likely to hike by 50bp at this meeting (as well as at the next meeting in July) and we expect them to deliver. What will be of interest will be the updated Summary of Economic Projections (SEP) and dot plot.
...
In the press conference, we expect Chair Powell to reiterate that labor market momentum is still too strong, inflation remains a big problem, and that the Fed is committed to restoring price stability. We don’t expect any concrete forward guidance beyond the next meeting, with Powell noting a reassessment in the path of hikes in September dependent on convincing signs that inflation is slowing. If asked about a pause in September, he is likely to outright dismiss the idea."

Update: From Goldman Sachs:

The FOMC is likely to respond to the firmer inflation print and the rise in long-term inflation expectations with a resolutely hawkish message at the June meeting, in addition to the 50bp rate hike it is set to deliver. This should come across clearly in the statement, the economic projections, and the dots.

We expect the FOMC to revise the policy guidance in its statement to say that the Committee “anticipates that raising the target range expeditiously will be appropriate until it sees clear and convincing evidence that inflation is moderating,” implying a high bar for reverting to 25bp hikes.

Analysts will be looking for comments on the size of future rate hikes.

Projections will be released at this meeting. For review, here are the March projections. In March, most participants expected seven rate hikes in 2022.  It appears the FOMC will reach seven 25bp hikes by July, and still have three more meetings to go.

Wall Street forecasts are being revised down for 2022 due to the ongoing negative impacts from the pandemic and the war in Ukraine.  So, GDP for 2022 will likely be revised down.

GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1
Projection Date	2022	2023	2024
Mar 2022	2.5 to 3.0	2.1 to 2.5	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 3.6% in May. The question is: Will the slowdown in economic growth push up the unemployment rate?  Or will the rate continue to decline? The projections for the unemployment rate will likely be mostly unchanged.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2
Projection Date	2022	2023	2024
Mar 2022	3.4 to 3.6	3.3 to 3.6	3.2 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 April 2022, PCE inflation was up 6.3% from April 2021. This was below the cycle high of 6.6%. Based on recent readings, inflation might stay elevated longer than expected.  PCE inflation will likely be revised up for 2022.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1
Projection Date	2022	2023	2024
Mar 2022	4.1 to 4.7	2.3 to 3.0	2.1 to 2.4

PCE core inflation was up 4.9% in April year-over-year. This was below the cycle high of 5.3%.  Core PCE inflation will also likely be revised up.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1
Projection Date	2022	2023	2024
Mar 2022	3.9 to 4.4	2.4 to 3.0	2.1 to 2.4