The FOMC raised the funds rate target range to 2¼% -2½%, as widely expected. The median dot in the Summary of Economic Projections now shows a 2-1 baseline for rate hikes in 2019-2020, compared to 3-1 in September, but the average dot declined significantly, a dovish surprise suggesting broad endorsement of the new baseline. Changes to the post-meeting statement were generally dovish as well. While the growth characterization was more upbeat than we had expected, the policy guidance was a bit more dovish than we had expected. The long-run median dot declined to 2.75%. The 2019 GDP growth projections declined by two tenths to 2.3%, and the longer run estimates signaled some “more room to run” with one tenth increase in potential growth to 1.9% and a one tenth decline in longer-run unemployment to 4.4%.
The FOMC raised the funds target rate to 2¼% -2½%, as expected. The median projected hiking path has now declined to 2-1 in 2019-20, down from 3-1 in September. Projections for 2021 continue to show no further hikes and the median dot at 3.125%. The long-run median dot declined to 2.75%, although this change was caused by only one dot moving down on net, as well as the addition of a new dot.
The post-meeting statement’s growth characterization was essentially unchanged—in contrast to our expectations of a modest downgrade—with overall growth “strong” and job gains, “strong, on average, in recent months.” The characterization of inflation was unchanged (“near 2 percent”), as expected. The most significant changes in the statement were to the policy guidance paragraph, which featured three arguably dovish changes. First, the “further gradual increases” language was modified to include “some,” though it retained “gradual.” Second, this guidance was prefaced with the less committal phrase, “the Committee judges,” rather than “the Committee expects.” Third, the balance of risks, which are still “roughly balanced,” saw an allusion to possible downside risks as the FOMC will “continue to monitor global economic and financial developments and assess their implications for the economic outlook.”
In terms of the economic projections in the SEP, the median GDP growth projection for 2018 edged down one tenth to 3.0%. The median 2019 GDP growth projection declined by two tenths to 2.3% and the 2020 and 2021 growth projections remained unchanged at 2.0% and 1.8%, respectively. The longer run estimate of potential growth increased one tenth to 1.9%. The projected path of unemployment remained unchanged in 2018 and 2019, with a one tenth increase in the 2020 unemployment projection to 3.6% and a one tenth increase in 2021 to 3.8%. The median longer-run unemployment rate projection edged down one tenth to 4.4%. The headline inflation projection for 2018 declined 0.2pp, reflecting “mark to market” effects after softer recent readings. Core inflation was downgraded by one tenth in 2018 to 1.9%, and, importantly, the 2019, 2020, and 2021 core inflation projections all declined by one tenth to 2.0% and no longer show an overshoot of the target.
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