RSS Feed by Calculated Risk on 1/28/2024 08:31:00 AM
Sunday, January 28, 2024
FOMC Preview: No Change to Policy Expected
Most analysts expect there will be no change to FOMC policy at the meeting this week, keeping the target range for the federal funds rate at 5‑1/4 to 5-1/2 percent.
Currently the market expects the next Fed move to be a 25 bp cut announced at either the March or May FOMC meeting. The market is pricing in a 2nd cut in June - and a total of around 5 cuts in 2024.
Based on the recent inflation reports, the FOMC will likely hint at a possible first rate cut in March. Also, Fed Chair Powell might note that the FOMC has started to discuss when to slow balance sheet runoff.
From Goldman Sachs:
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 December and averaged just under 3.8% for Q4. The FOMC's unemployment rate projection for Q4 was close.
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.
As of December 2023, PCE inflation increased 2.6 percent year-over-year (YoY). On a Q4-over-Q4 basis, PCE inflation increased 2.6%, lower than the December projection.
PCE core inflation increased 2.9 percent YoY in December. On a Q4-over-Q4 basis, PCE inflation increased 3.0%, lower than the December projection.
"The FOMC will likely aim to keep a March cut on the table without sending a decisive signal by removing the outdated hiking bias from its statement and noting that future policy changes will depend on upcoming inflation and other data."
Projections will not be released at this meeting. For review, here are the December projections. Since the last projections were released, the economy has performed better than the FOMC expected, and inflation was lower than expected.
The BEA reported real GDP increased 3.1% Q4 over Q4 in 2023. This was solidly above the December projections.
| GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1 | ||||
|---|---|---|---|---|
| Projection Date | 2023 | 2024 | 2025 | 2026 |
| Dec 2023 | 2.5 to 2.7 | 1.2 to 1.7 | 1.5 to 2.0 | 1.8 to 2.0 |
| Sept 2023 | 1.9 to 2.2 | 1.2 to 1.8 | 1.6 to 2.0 | 1.7 to 2.0 |
The unemployment rate was at 3.7% in December and averaged just under 3.8% for Q4. The FOMC's unemployment rate projection for Q4 was close.
| Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2 | ||||
|---|---|---|---|---|
| Projection Date | 2023 | 2024 | 2025 | 2026 |
| Dec 2023 | 3.8 | 4.0 to 4.2 | 4.0 to 4.2 | 3.9 to 4.3 |
| Sept 2023 | 3.7 to 3.9 | 3.9 to 4.4 | 3.9 to 4.3 | 3.8 to 4.3 |
As of December 2023, PCE inflation increased 2.6 percent year-over-year (YoY). On a Q4-over-Q4 basis, PCE inflation increased 2.6%, lower than the December projection.
| Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2023 | 2024 | 2025 | 2026 |
| Dec 2023 | 2.7 to 2.9 | 2.2 to 2.5 | 2.0 to 2.2 | 2.0 |
| Sept 2023 | 3.2 to 3.4 | 2.3 to 2.7 | 2.0 to 2.3 | 2.0 to 2.2 |
PCE core inflation increased 2.9 percent YoY in December. On a Q4-over-Q4 basis, PCE inflation increased 3.0%, lower than the December projection.
Over the last 6 months, the PCE Price Index increase 2.0% annualized, the core PCE price index increased at a 1.9% annual rate, and core PCE minus Housing increased 1.1% annualized suggesting that 2024 projections are too high.
| Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2023 | 2024 | 2025 | 2026 |
| Dec 2023 | 3.2 to 3.3 | 2.4 to 2.7 | 2.0 to 2.2 | 2.0 to 2.1 |
| Sept 2023 | 3.6 to 3.9 | 2.5 to 2.8 | 2.0 to 2.4 | 2.0 to 2.3 |
