What The "Dots" Say: Fed Keeps 2017, 2018 And Long-Run Rate Outlook Unchanged, Raises 2019

For those curious what the Fed's latest dot plot reveals, here is the summary:

  • Median target for end-2017 is 1.375%, unchanged
  • Median target for end-2018 is 2.125%, unchanged;
  • Median target for end-2019 is 3% vs 2.875% in December;
  • Long-run target is 3%, unchanged 

This suggests that at least as of now, the Fed sees no need to move its rate hike forecasts materially higher. As a reminder, the medians increased in December after most declined in previous three quarters.

Below are the dot forecast ranges, which remained the same, each with internal shifts:

  • 2017 range 0.875%-2.125%
  • 2018 range 0.875%-3.375%
  • 2019 range 0.875%-3.875%
  • Long-run range 2.5%-3.75%

And then there are the economist forecasts which are as follows:

Longer-run median unemployment rate 4.7% compares to previous forecast of 4.8% at Dec. 14, 2016 meeting

  • 2017 median jobless rate at 4.5% vs 4.5%
  • 2018 median jobless rate at 4.5% vs 4.5%
  • 2019 median jobless rate at 4.5% vs 4.5%

Longer-run real GDP median projection of 1.8% compares to previous forecast of 1.8%

  • 2017 median GDP growth 2.1% vs 2.1%
  • 2018 median GDP growth 2.1% vs 2.0%
  • 2019 median GDP growth 1.9% vs 1.9%

Longer run PCE inflation median at 2.0% compares to previous forecast of 2.0%

  • 2017 median PCE inflation 1.9% vs 1.9%
  • 2018 median PCE inflation 2.0% vs 2.0%
  • 2019 median PCE inflation 2.0% vs 2.0%
  • 2017 median core PCE inflation 1.9% vs 1.8%
  • 2018 median core PCE inflation 2.0% vs 2.0%
  • 2019 median core PCE inflation 2.0% vs 2.0%

Longer run Fed funds median at 3.0% compares to previous forecast of 3.0%

  • 2017 median Fed funds 1.4% vs 1.4%
  • 2018 median Fed funds 2.1% vs 2.1%
  • 2019 median Fed funds 3.0% vs 2.9%

It is not exactly clear why the long-run GDP is 1.8%-2.0% while the long-run Fed Funds forecast is 3.0%, nor is it clear why the unemployment rate is expected to stay well below its long-run average without even a trace of upward inflation but whatever: the Fed had one mandate - hike today, and ignore the rest.

In short: very few changes from the December forecast, and as some have suggested, the Fed may have just wanted to push forward the March rate hike, while giving itself the option to hike once more in 2017 if the Fiscal situation shoudl merit it.

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