FOMC Preview: Flying Blind

The Federal Open Market Committee (FOMC) is meeting today and Wednesday, with the FOMC statement expected to be released at 2:00 PM ET on Wednesday.

Expectations are the FOMC will take no action at this meeting (the FOMC will probably not adjust the size of their purchases of agency mortgage-backed securities and Treasury securities).

A key question for the meeting this week is how the FOMC will address the lack of data (aka "flying blind").  The delayed data probably means the FOMC will be on hold until at least the December meeting.  However the shutdown will still be impacting data releases through the end of the year, so the FOMC might wait until 2014 to start the "taper".

As a reminder, here are the quarterly projections from the September meeting. Unfortunately the advance report for Q3 GDP has been delayed (now scheduled for November 7th), so the FOMC is flying blind on GDP.

GDP projections of Federal Reserve Governors and Reserve Bank presidents
Change in Real GDP1	2013	2014	2015	2016
Sept 2013 Meeting Projections	2.0 to 2.3	2.9 to 3.1	3.0 to 3.5	2.5 to 3.3

¹ Projections of change in real GDP and in inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

The unemployment rate was at 7.2% in September, however the unemployment rate is expected to increase in October due to the shutdown (and then decline in November as people return to work).

Unemployment projections of Federal Reserve Governors and Reserve Bank presidents
Unemployment Rate2	2013	2014	2015	2016
Sept 2013 Meeting Projections	7.1 to 7.3	6.4 to 6.8	5.9 to 6.2	5.4 to 5.9

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

For inflation, PCE inflation was up 1.2% year-over-year in August (close to projected rate, but far below target), however the September report was delayed until next week (November 8th). 

Inflation projections of Federal Reserve Governors and Reserve Bank presidents
PCE Inflation1	2013	2014	2015	2016
Sept 2013 Meeting Projections	1.1. to 1.2	1.3 to 1.8	1.6 to 2.0	1.7 to 2.0

For core inflation, core PCE inflation was up 1.2% year-over-year in August. 

Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents
Core Inflation1	2013	2014	2015	2016
Sept 2013 Meeting Projections	1.2 to 1.3	1.5 to 1.7	1.7 to 2.0	1.9 to 2.0

So a key for the FOMC statement is how the FOMC addresses the lack of data (and if they mention the shutdown and related economic slowdown).