We just emailed out our FOMC Meeting Checklist to paid subscribers to help them navigate the Fed and rising inflation. As a courtesy, we are sharing just a small part of our FOMC analysis with readers.
The FOMC meets on Tuesday and Wednesday of this week and will issue its post-meeting statement at 2:00 PM ET on Wednesday. The markets will be tuned in to any indication of timing for the next Fed policy shift with respect to quantitative easing, or whether the median dot plot estimate will now show a tightening by the end of the 2023 forecast horizon. Policymakers will address the heightened prospect for 2021 chain price gains since the last meeting, though the official position will likely remain that the price updraft is transitory.
The SEP will be updated at this week’s meeting, and the market will expect a narrowing in the GDP estimates around the current optimistic path, boosts in the near term inflation estimates to account for recent robust inflation reports, a boost in the jobless rate path given a diminished pace of improvement in recent months, and a potentially higher trajectory for the federal funds rate.
The median 2021 GDP estimate was boosted to 6.5% in March from 4.2% in December and 4.0% in September, and the risk is that this hike will be trimmed somewhat in June, with a narrower range of near-term forecasts.
The PCE chain price medians for 2021 were revised up to 2.4% for the headline and 2.2% for the core, after December medians of 1.8% for both, September medians of 1.7% for both, and respective June medians of 1.6% and 1.5%. Outsized CPI and PPI gains since March suggest a further round of big hikes.
The median jobless rate estimate for 2021 was trimmed to 4.5% in March from 5.0% in December, 5.5% in September, and 6.5% in June, and this trimming may be reversed somewhat in June, given that the reported rate has fallen at a more modest pace since the March meeting, from 6.2% February to 5.8% in May.
Bottom Line
There is little likelihood of any policy changes at the June FOMC. Markets will be focused on the Fed’s verbiage in the press conference about prospects for tapering later in the year, or early in 2022. The markets will continue to monitor how sensitive policymakers will be to inflation rates above the 2% objective, and hence how committed some members are to the Fed’s shift to average inflation targeting regime.
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