by Calculated Risk on 10/30/2022 10:28:00 AM
Expectations are the FOMC will announce a 75bp rate increase in the federal funds rate at the meeting this week.
Communicating that the discussion took place should be enough to open the door for a step down to a 50bp rate hike in December, as we currently expect. That said, we expect Chair Powell to say that no decision was taken and the committee remains data dependent. With two employment reports and one CPI report between the November FOMC meeting and the December blackout period, the Fed will be reluctant to pre- commit to a smaller rate hike this far in advance. Data still need to cooperate.
By reaffirming the September median policy rate path, repeating consensus FOMC views that risks to the outlook for inflation still reside to the upside, and emphasizing a willingness to err on the side of tightening to much over tightening too little, we think the Fed can be successful in pushing back against any interpretation that a slower pace of rate hikes implies a lower terminal rate or a quicker pivot to rate cuts. In other words, it is now about the destination, not the journey.”
From Goldman Sachs:
Current Wall Street forecasts are for GDP to increase slightly in 2022 Q4 over Q4 in line with FOMC projections. For example, BofA is projecting:
1 Projections of change in real GDP and inflation are from the fourth quarter of the previous year to the fourth quarter of the year indicated.
The unemployment rate was at 3.5% in September. So far, the economic slowdown has not pushed up the unemployment rate.
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.
As of September 2022, PCE inflation was up 6.2% from September 2021. This was below the cycle high of 7.0% YoY in June. There was a surge of inflation in Q4 2021, so with less inflation in Q4 this year, it is possible inflation will decline to the projected year-over-year range in Q4.
PCE core inflation was up 5.1% in September year-over-year. This was below the cycle high of 5.4% YoY in February. Core inflation has picked up more than expected and will likely be above the Q4 projected range.