In June, most FOMC participants (14 out of 19) judged that the first increase in the federal funds rate would occur in 2015. Three participants judged 2014 would be appropriate, and only one in 2016. It is possible that more participants will move out a little (maybe a few more will think 2016 is appropriate, or fewer think 2014).
In the press conference on Wednesday, I expect Fed Chairman Ben Bernanke will probably make it clear that the Fed will not raise rates for a "considerable" time after the end of QE, and it seems likely he will express concern about the low level of inflation.
On the projections, it looks like GDP will be downgraded again, and the projections for the unemployment rate might be reduced slightly.
Note: March 2012 projections included to show the trend (TBA: To be announced). The projections this month will be the first for 2016.
GDP increased at a 1.8% annual rate in the first half of 2013. GDP would have to increase at a 2.8% annual rate in the 2nd half to reach the FOMC lower projection, and at a 3.3% rate to reach the higher projection.
Early forecasts for Q3 are that GDP will increase at around a 1.5% annual rate, so I expect a decrease in the GDP projections for 2013 at this meeting. We might see the projections revised down from the 2.3% to 2.6% range in June to 1.8% to 2.2% or so.
| GDP projections of Federal Reserve Governors and Reserve Bank presidents | ||||
|---|---|---|---|---|
| Change in Real GDP1 | 2013 | 2014 | 2015 | 2016 |
| Sept 2013 Meeting Projections | TBA | TBA | TBA | TBA |
| June 2013 Meeting Projections | 2.3 to 2.6 | 3.0 to 3.5 | 2.9 to 3.6 | |
| Mar 2013 Meeting Projections | 2.3 to 2.8 | 2.9 to 3.4 | 2.9 to 3.7 | |
The unemployment rate was at 7.3% in August and the Q4 projections might be revised down a little. This really depends on if participants think the employment participation rate will continue to decline - or if it will bounce back a little.
| Unemployment projections of Federal Reserve Governors and Reserve Bank presidents | ||||
|---|---|---|---|---|
| Unemployment Rate2 | 2013 | 2014 | 2015 | 2016 |
| Sept 2013 Meeting Projections | TBA | TBA | TBA | TBA |
| June 2013 Meeting Projections | 7.2 to 7.3 | 6.5 to 6.8 | 5.8 to 6.2 | |
| Mar 2013 Meeting Projections | 7.3 to 7.5 | 6.7 to 7.0 | 6.0 to 6.5 | |
Projections for inflation will probably be unchanged. Currently inflation is tracking close to the June projections (as is core inflation). The current concern is that the inflation projection is below the Fed's target.
| Inflation projections of Federal Reserve Governors and Reserve Bank presidents | ||||
|---|---|---|---|---|
| PCE Inflation1 | 2013 | 2014 | 2015 | 2016 |
| Sept 2013 Meeting Projections | TBA | TBA | TBA | TBA |
| June 2013 Meeting Projections | 0.8 to 1.2 | 1.4 to 2.0 | 1.6 to 2.0 | |
| Mar 2013 Meeting Projections | 1.3 to 1.7 | 1.5 to 2.0 | 1.7 to 2.0 | |
Here is core inflation:
| Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents | ||||
|---|---|---|---|---|
| Core Inflation1 | 2013 | 2014 | 2015 | 2016 |
| Sept 2013 Meeting Projections | TBA | TBA | TBA | TBA |
| June 2013 Meeting Projections | 1.2 to 1.3 | 1.5 to 1.8 | 1.7 to 2.0 | |
| Mar 2013 Meeting Projections | 1.5 to 1.6 | 1.7 to 2.0 | 1.8 to 2.0 | |
Conclusion: I expect another downgrade to the GDP projections and possibly some reduction in asset purchases (but not certain). It does seem odd that the FOMC would start reducing asset purchases while downgrading GDP, and also expressing concern about the downside risks from fiscal policy. With the unemployment rate too high, and inflation too low, there is a strong argument to wait a few more months before starting to taper asset purchases.
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