FOMC Statement and Updated Forecasts

September 18, 2019

The federal funds target range as expected was lowered another 25 basis points to 1.75-2.0%. In the opening paragraph of the FOMC statement┬áthat describes economic conditions, investment and export demand were dowgraded to “have weakened,” while personal consumption was upgraded to a stronger pace. Similar to the statement at end-July when the initial easing was enacted, the justification was not driven by a change in the baseline forecast of sustained growth, strong labor market conditions and inflation near the 2% target but rather to uncertainties surrounding the baseline, which are tilted to the downside. The statement did not modify forward guidance. However, the vote behind this 25-basis point interest rate cut was different. In the late July meeting, there was an 8-2 majority, with the KC and Boston district presidents (George and Rosengren) wanting no change in the federal funds target. Policymakers split today by 7-1-2, with Esther George and Eric Rosengren again favoring no change, but St. Louis Fed President Bullard dissented in favor of a 50-basis point cut.

Macro-economic forecasts introduced year 2022. Expected growth was bumped up to 2.2% in 2019, held at 2.0% in 2020, bumped higher to 1.9% in 2021 and put at 1.8% in 2022. Forecasts of PCE inflation and unemployment were barely adjusted. The expected federal funds path was lowered to 1.9% at end-2019, that same level a year later, and 2.1% at end-2021. They foresee a rise to 2.4% at end-2022, and kept the perception of the longer run appropriate level at 2.5%.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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