While we are laughing at Yellen burying what little credibility the Fed may have had left both with her statement and her answers to press Q&A, here is Goldman.
BOTTOM LINE: Fed officials indicated a cautious approach in today’s statement and economic projections. In the Summary of Economic Projections, the number of participants anticipating only one rate hike this year rose to six from one, although the median remained at two. The number of projected hikes for 2017 and 2018 were also lowered to just three per year.
MAIN POINTS:
1. The FOMC left rates unchanged at today’s meeting, and hinted that the latest pause may continue a while longer. The statement indicated that “economic activity appears to have picked up”, even as labor market activity slowed. In figures submitted for the Summary of Economic Projections (SEP), Fed officials estimated that GDP growth will run at 2.0% this year and beyond, and that core PCE inflation would rise to +1.7% by the end of this year.
2. However, the statement and SEP were more dovish than expected in several respects. First, the number of participants anticipating only one rate increase this year rose to six from just one in March—more than we had expected. Second, funds rate projections for 2017 and 2018 declined more than we expected: the median estimate for 2017 fell by 25bp to 1.6%, and for 2018 by 63bp to 2.4%. Third, the statement expressed slightly more concern about developments in inflation expectations, noting that market-based measures “declined” (instead of “remained low”), and that only “most” survey-based measures were little changed. Lastly, Kansas City Fed President Esther George voted in favor of holding policy rates unchanged—another indication of a more cautious mood about the committee.
3. In the Summary of Economic Projections (SEP), GDP forecasts were lowered slightly for 2016 and 2017, while projections for the unemployment rate were little changed.
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