"Considerable Time" Stays as Growth is "Moderate"

Economic Pulse
September 17, 2014
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Today’s policy announcement from the Federal Open Market Committee (FOMC) was little changed from July. Provided that inflation and employment move in line with the Fed’s dual mandate (maximum employment and price stability), the asset purchase program, which saw purchases trimmed by a further $5 billion today, will end after the next meeting on October 29th.

GDP growth for next year was trimmed to a 2.6%-3.0% range—down notably from the Committee’s 3.0%-3.2% June forecast—yet the year-end median expectation for the target Fed Funds rate was raised by 25 basis points from June. Similarly, the 2016 median rate expectation was 3/8 percentage points higher. (Today’s projections allowed for forecasts rounded to the nearest 1/8, rather than 1/4, percentage point.)

With longer-run growth estimates at just 2.0%-2.3%, “above trend” growth forecasts for 2015 and 2016, in tandem with an even faster rate of decline in the unemployment rate than had been previously seen, may have prompted Committee members to bring forward their tightening plans accordingly.

Of note: the Fed released a separate statement on its “Policy Normalization” plans. “When it becomes appropriate,” the Committee will: 1) move the target rate largely by adjusting (upward) the interest rate it pays on excess reserves and to a lesser degree, also will use overnight reverse repo agreements, and 2) will reduce its securities holdings by ceasing to reinvest principal repayments. At present, the Committee does not anticipate selling any agency MBS from its portfolio.

Chart 1. Economic Projections of Federal Reserve Board Members and Presidents, September 2014 and Prior

Source: Federal Reserve

Note: Excludes the three highest and three lowest projections for each variable in each year (except average and median Fed Funds rate figures, which include all participants.)

Bolded figures are September 2014 forecasts (versus June 2014 and March 2014 projections).

Arrows (↑,↓ and ≈ ) indicate direction of change in forecast from June 2014 to September 2014.

Real GDP and inflation projections are from Q4 of the previous year to Q4 of the year indicated. PCE inflation refers to the price index for personal consumption expenditures. Projections for the unemployment rate are for the average rate during Q4 of the year indicated.

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