FOMC Preview: No Change to Policy Expected

Most analysts expect there will be no change to FOMC policy at this meeting, keeping the target range for the federal funds rate at 5‑1/4 to 5-1/2 percent.

On the meeting this week from BofA:

"We still do not expect a hike in November, as the Fed is clearly worried about the extent of financial tightening. But today’s robust spending and inflation data keep a December hike on the table, as they are a reminder that the war on inflation has not yet been won."
emphasis added

And from Goldman Sachs economists:

"Fed officials appear to have signaled that they will not be hiking at their November meeting next week, and we interpret their recent comments to imply that most would prefer not to hike again, consistent with our forecast. ... the story of the year so far has been that economic reacceleration has not prevented further labor market rebalancing and progress in the inflation fight. We expect this to continue in coming months, with core PCE on track to undershoot the FOMC’s year-end projections."

Projections will not be released at this meeting. For review, here are the September projections.  Since the last projections were released, the economy has performed better than the FOMC expected, and inflation was slightly below expectations.

The BEA reported real GDP increased at a 4.9% annual rate in Q3. After three quarters, GDP has increased at a 3.1% annual rate in 2023, and to hit the high end of the FOMC projection for Q4, GDP would have to decrease 0.3% in Q4.  To hit the low end of the FOMC projection, GDP would have to decrease 1.5% in Q4.

The FOMC projection for year-over-year growth in Q4 2023 appears too low.

GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1
Projection Date	2023	2024	2025
Sept 2023	1.9 to 2.2	1.2 to 1.8	1.6 to 2.0
June 2023	0.7 to 1.2	0.9 to 1.5	1.6 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 3.8% in September. The FOMC's unemployment rate projection for Q4 is probably close.

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2
Projection Date	2023	2024	2025
Sept 2023	3.7 to 3.9	3.9 to 4.4	3.9 to 4.3
June 2023	4.0 to 4.3	4.3 to 4.6	4.3 to 4.6

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

As of September 2023, PCE inflation increased 3.4 percent year-over-year (YoY), unchanged from 3.4 percent YoY in August, and down from the recent peak of 7.1 percent in June 2022.  It appears YoY PCE inflation will be close to the FOMC projection for Q4.

Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1
Projection Date	2023	2024	2025
Sept 2023	3.2 to 3.4	2.3 to 2.7	2.0 to 2.3
June 2023	3.0 to 3.5	2.3 to 2.8	2.0 to 2.4

PCE core inflation increased 3.7 percent YoY, down from 3.8 percent in August, and down from the recent peak of 5.6 percent in February 2022. This remains a concern for the FOMC, however this includes shelter that was up 7.2% YoY in September (even though asking rents are mostly unchanged YoY).  Also, core PCE inflation was fairly high in Q4 2022, and it seems likely YoY core PCE inflation will be at or below the low end of the FOMC Q4 projection.

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1
Projection Date	2023	2024	2025
Sept 2023	3.6 to 3.9	2.5 to 2.8	2.0 to 2.4
June 2023	3.7 to 4.2	2.5 to 3.1	2.0 to 2.4