The Federal Open Market Committee Essay

1778 Words Jun 22nd, 2015 null Page
Slightly More Dovish Fed
The Federal Open Market Committee (FOMC) presented its latest economic projections last week after the conclusion of the 16-17 June policy meeting. It was felt by many observers, including myself, that it would be a non-event in terms of forward guidance. The updated projections do, however, appear to indicate that the FOMC has become more resigned to the persistence of very low interest rates. Real GDP growth for 2015 has been revised down significantly to 1.8%-2.0% from the 2.3%-2.7% projection in March. Inflation forecasts were unchanged, but unemployment is now expected to fall slightly more quickly than previously estimated to 5.0-5.2% by Q4. Based on its dual mandates, the anticipated decline in the unemployment rate gives the FOMC some ammunition for justifying a higher federal funds target in 2015. Meanwhile, the Fed’s estimates of long-term real GDP growth, inflation, and unemployment were left unchanged. Most importantly for financial markets, there appears to be a larger number of FOMC participants who favour a slower pace to raising interest rates compared to back in March. This constitutes a dovish development. There is still, however, a strong chance that the Fed raises interest rates in H2 based on the tone of economic data. Fed Chair Yellen stressed in the press conference that the FOMC required unambiguous evidence to justify a tightening of policy. This is unlikely to arrive before the 28-29 July policy meeting, shifting the focus…

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