Overall, as we had expected, the median macro and funds rate projections of FOMC participants were little changed. The median dots were essentially unchanged. One notable change was that the distribution shifted to show a stronger consensus for three hikes in 2017, with the risks now weighted toward four hikes rather than only two hikes.
▪ The distribution of dots for 2018 also shifted higher, pointing to a greater consensus for three hikes in 2018. In December, only three participants were at the median of 2.125% for 2018, while five were 25 basis points below. Now there are six dots at the median of 2.125%.
▪ The median dots still indicate a pace of three hikes per year in 2017, 2018, and 2019, but there was a discernible rise in the distribution of the dots, and not just for 2017. On average, the dots moved up four basis points in 2017, nine basis points in 2018, and nine basis points in 2019.
There were only three changes in the median projections, each a tenth, and none strike us as meaningful. ▪ Core PCE inflation was revised up a tenth in 2017, as anticipated.
▪ Real GDP growth in 2018 was revised up a tenth, bringing it to 2.1%.
▪ Finally, the longer-run unemployment rate—a proxy for their estimate of the NAIRU—was revised down a tenth, to 4.7%.
The FOMC’s macro projections diverge a bit from our own expectations.
▪ Like us, FOMC participants project a 2.1% growth in 2017 and 2018. However, we project that growth will remain at 2.1% in 2019, while the FOMC projects it will slow two-tenths to 1.9%. This discrepancy likely reflects our incorporation of an explicit fiscal package that is, on the net, stimulative.
▪ The FOMC’s projection of a flat unemployment rate—4.5% in the fourth quarters of 2017, 2018, and 2019—still stands out. We have it declining to 4.2% over the same period.
▪ The FOMC’s median inflation projections also continue to show no overshoot. We have both core and headline at 2.1% in 2018 and 2019—a small overshoot.
However, the ranges hint that some FOMC participants now anticipate a slight overshoot on both core and headline inflation, similar to that shown in our forecast.
▪ The central tendency range for core PCE inflation in 2019 is now 2.0%-2.1%, whereas before it was 2.0%.
▪ That means that four or more participants projected core PCE inflation would be 2.1% or higher in 2019.
Projections of inflation and growth in the real gross domestic product (GDP) are for periods from the fourth quarter of the previous year to the fourth quarter of the year indicated. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.