“In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”
emphasis
“We expect the Fed to maintain the target range for the federal funds rate at 5.0-5.25% at the June FOMC meeting, while it assesses monetary policy lags and bank stress. That said, a skip is not the same as a prolonged pause. With the debt limit increased and bank stress relatively stable – it may not be getting much better, but it also does not appear to be getting much worse – the Fed’s primary concern remains inflation and it will be reluctant to say definitively that the hiking cycle is over. Hence, we expect the Fed to retain upward bias in its projected policy rate path and we look for the median FOMC member to forecast one additional 25bp rate hike by year-end, for a terminal target range of 5.25-5.50%. In addition, we think the median forecast for year-end 2024 will rise by 37.5bp to 4.5-4.75%, signaling increased willingness to maintain a “higher-for-longer” policy stance to bring inflation down with greater confidence.”
emphasis added
And from Goldman Sachs economists:
The FOMC is likely to pause at its June meeting next week to let the haze clear before it considers another rate hike. The Fed leadership has signaled that it sees pausing as the prudent course because uncertainty about both the lagged effects of the rate hikes it has already delivered and the impact of tighter bank credit increases the risk of accidentally overtightening. … We expect the median dot to show one additional hike to a new peak of 5.25-5.5%, in line with our own forecast.
| GDP projections of Federal Reserve Governors and Reserve Bank presidents, Change in Real GDP1 | ||||
|---|---|---|---|---|
| Projection Date | 2023 | 2024 | 2025 | |
| Mar 2023 | 0.0 to 0.8 | 1.0 to 1.5 | 1.7 to 2.1 | |
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 3.7% in May. To reach the mid-point of the FOMC projections for Q4 2023, the economy would likely have to lose over 1 million jobs by Q4. The FOMC will likely lower their unemployment rate projection for Q4.
| Unemployment projections of Federal Reserve Governors and Reserve Bank presidents, Unemployment Rate2 | ||||
|---|---|---|---|---|
| Projection Date | 2023 | 2024 | 2025 | |
| Mar 2023 | 4.0 to 4.7 | 4.3 to 4.9 | 4.3 to 4.8 | |
2 Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.
As of April 2023, PCE inflation increased 4.4 percent year-over-year (YoY), up from 4.2 percent YoY in March, and down from the recent peak of 7.0 percent in June 2022. The projection of PCE inflation for Q4 2023 will might be revised up slightly, however May and June 2022 PCE inflation was very high, and YoY PCE inflation will likely decrease sharply over the next two months.
| Inflation projections of Federal Reserve Governors and Reserve Bank presidents, PCE Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2023 | 2024 | 2025 | |
| Mar 2023 | 3.0 to 3.8 | 2.2 to 2.8 | 2.0 to 2.2 | |
PCE core inflation increased 4.7 percent YoY, up from 4.6 percent in March, and down from the recent peak of 5.4 percent in February 2022.; This remains a concern for the FOMC, however this includes shelter that was up 8.4% YoY in April (even though asking rents are mostly unchanged YoY).
| Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1 | ||||
|---|---|---|---|---|
| Projection Date | 2023 | 2024 | 2025 | |
| Mar 2023 | 3.5 to 3.9 | 2.3 to 2.8 | 2.0 to 2.2 | |