This is how Goldman sees today's events, and critical FOMC announcement, public communication overhaul and press release, unfolding.
10:00: Pending home sales (December): Small decline? The pending home sales index – which tracks signed home sales contracts, and leads the official count of existing home sales by 1-2 months – rose sharply over the last two months. The consensus expects a small setback (-1%) in this month’s report. Mortgage purchase application volumes have also remained very weak, suggesting that home sales are not yet taking off.
Consensus: -1.0%; Last +7.3%. MAP: 2
10:00: FHFA House Price Index (November): This index—which tracks the purchase price of homes with agency-conforming mortgages—has been mixed over the last few months. Since Q1 2011, the level of the index has been about unchanged.
Consensus: Flat; Last -0.2%.
12:30: FOMC rate decision and statement. The FOMC will release its standard statement at 12:30 today. We don't expect significant changes in either the growth or inflation paragraphs of the statement. Although the data have been generally stronger than expected, the basic message of “moderate expansion" still looks appropriate.
However, we expect the committee to eliminate the "mid-2013" phrase. The whole point of the SEP funds rate projections is that they are a better avenue for providing guidance on future policy than the statement, not that the Fed needs an additional avenue for such guidance. In our view, it would be quite problematic to have the SEP projections and the FOMC rate guidance co-exist, as many market participants seem to be expecting. If they are consistent with one another, nothing is gained by retaining both types of guidance. And if they are inconsistent, this could cause great confusion. In an effort to avoid misunderstanding, the committee could leave the 2013 language in the statement one last time, and then explain that it will disappear in the future.
The FOMC might also release a statement about its longer-term monetary policy goals and strategy. This would probably involve an explicit—but flexible—inflation target formulated as a headline PCE inflation rate of 2% over the medium term, but with room for significant deviations in the shorter term. It is clear that some type of statement is in the works. However, we do not know whether it will be released today or at a subsequent meeting.
14:00: Forecasts released. At 2pm the committee will release its expanded forecasts, including projections for GDP growth, unemployment, and inflation, and now also the federal funds rate. The key point is that while we expect the fed funds rate projections to range quite widely, we think that the median participant will project a funds rate of just 0.75% by the end of 2014. This would imply that the median participant expects the first rate hike in 2014. Please see the links below for more details.
Press reports indicate that a forecast “narrative”, including qualitative guidance about how the balance sheet is likely to evolve, will not be published today. Instead, it will be included in the minutes from today’s meeting released on February 15.
14:15: Fed Chairman Bernanke press conference. Chairman Bernanke will have plenty to explain at his afternoon press conference. We think the focus will be on the interpretation of the funds rate projections, the inflation target (if one is released), and what the committee might say about the balance sheet in three week’s time.