FOMC Statement and Forecasts

September 21, 2016

The statement elevates the risk of a coming rate hike in two ways but left the federal funds rate target at a range of 0.25 – 0.50%. A new sentence was inserted that the “Committee judges that the case for an increase in the federal funds rate has strengthened but decided, for the time being, to wait for further evidence of continued progress toward its objectives.” Secondly, Eric Rosengren of the Boston Fed and Loretta Mester of the Cleveland Fed joined Esther George of the Kansas City Fed in voting for a 25-basis point rate hike now. All of the Board of Governors remained with the majority in a 7-3 vote.

In the released forecasts, projected GDP growth this year was cut by 0.2 percentage points to 1.8%. Growth in the following two years is projected at 2.0%, same as in the June forecast. However, projected growth in 2019, introduced now for the first time, was put at 1.8%, and most interestingly, the long run potential growth rate was cut to 1.8% from 2.0%. PCE deflator inflation for 2017 and 2018 of 1.9% and then 2.0% are the same as in the previous set of forecasts. But core inflation in 2017 was cut by 0.1 percentage point to 1.8%. The dot-scatter diagrams show a median end-year appropriate fed funds rate level of 0.625% this year, 1.125% in 2017, 1.875% in 2018 and 2.625% in 2019.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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