US outlook prior to the FOMC meeting
Economic activity is clearly one of the main inputs:
Source: BEA and @janzilinsky
BEA revised Q1 GDP growth estimate up (from 0.5 to 0.8 percent) in late May.
Expectations one day before the meeting:
Fed Fund futures prices today say:— Jan Zilinsky (@janzilinsky) June 14, 2016
- <4% chance of a rate hike tomorrow (it was 30% one month ago)
- 20+% probability of higher rate in July
- Tim Duy: Five Questions for Janet Yellen
- Larry Summers: Groundhog Day at Fed June meeting
- Greg Ip: World Isn’t Ready for Another Fed Increase --- "When the Federal Reserve raised rates in December, it thought the fallout would be minimal. It had telegraphed the increase for a year and it was, after all, just a quarter of a percentage point. Yet since then both the U.S. and even more so the global economies have slowed. The reason isn’t because a quarter-point rate increase by itself represents a stringent tightening of monetary policy. Rather, it brought to an end seven years of unprecedented monetary ease that had helped fuel a global commodity bubble. That bubble began deflating in 2014 and the effects are now being felt around the world and washing back on the U.S. ... Even if financial markets remain stable, the reversal of the commodity investment boom has “become and will remain a major headwind to world economic growth going forward,” the OECD says."
- Economists See Two ’16 Fed Rate Hikes, Unsure on Timing of First - Bloomberg
- Mark Thoma: The Fed Should Wait for Clarity Before Raising Rates | The Fiscal Times
- It’s a Good Thing the Fed Has Missed its Chance to Raise Rates. Here’s Why. - Real Time Economics - WSJ
- FRB: FEDS Notes: Assessing the Change in Labor Market Conditions
- Justin Fox: This Job Market Slump Started a While Ago - Bloomberg View: "The [Labor Market Conditions Index] LMCI is a new measure cooked up by Federal Reserve Board economists in 2014 that consolidates 19 different labor market indicators to reflect changes in the job market. ... The May index, released Monday morning, showed a 4.8-point decline from April."
- Households in Fed Survey Felt Vulnerable Despite Economic Gains - Bloomberg
- The May Jobs Report Stifles Optimism « U.S. Economic Snapshot
- Mohamed A. El-Erian: What the Fed Will and Won’t Do - Bloomberg View
- Clinton's new worry: A 'Brexit'-fueled recession
- WSJ Survey of economists
- From 2015: What should the Fed do? Three views
Analysis after the meeting
Narayana Kocherlakota: The Fed Needs More Than One Direction --- "Because the Fed doesn't want to ease, it must view each interest-rate increase as semi-permanent, meaning that it must be exceedingly cautious about making any move. As a result, its progress toward normalization -- that is, toward getting interest rates closer to where they have been historically -- is slower than it otherwise could be."
NYT: Fed Holds Interest Rates Steady and Plans Slower Increases --- "The Fed is struggling to adapt its plans to the reality of an economy that refuses to boom. Seven years after the official end of the recession, the news remains a mix of good and bad. Most recently, job growth has weakened even as broader measures of economic activity have picked up. ... Fed officials increasingly think the economy has exited its postcrisis period, according to economic projections that the central bank published on Wednesday. The recovery, in other words, may be incomplete, but it is also over."
FT: Fed pares back 2017 interest rate forecasts — FT.com --- "Ms Yellen gave a broadly optimistic outlook about the US economy when she spoke in Philadelphia. But she also withdrew earlier guidance that she expected a rate rise “in the coming months”, suggesting the Fed now is firmly in wait-and-see mode. Futures markets were predicting only a one-in-five chance of a move at the central bank’s next meeting in July going into Wednesday’s announcement, with slightly stronger odds in September."
Federal Open Market Committee assessment of the economy: "The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will strengthen. Inflation is expected to remain low in the near term, in part because of earlier declines in energy prices, but to rise to 2 percent over the medium term as the transitory effects of past declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to closely monitor inflation indicators and global economic and financial developments."