Kansas City Fed President Esther George said in a speech that the revised FOMC statement is interpreted as a “tolerance” for higher inflation, “less as a promise to engineer” it. Also, there is “little benefit” in getting too tied up in a “precise mathematical formulation” of the “average”.

She also viewed the statement as a “message of patience”. That is, “we are signaling that the committee is unlikely to preemptively tighten policy at the prospect that inflation is approaching 2 percent, but rather a willingness to wait until the data confirms its arrival”.

Nevertheless, “given an unsettled outlook for inflation, it is not yet clear how much patience will be required,” she added. ” The pandemic has affected prices in a variety of ways, and it will be difficult to assess the underlying pace of inflation until the dust settles. ”

George’s full speech here.

The latest Fed’s Beige Book report indicates general slowdown in economic activity, with variations across different regions. Specifically, four districts reported “modest growth”, two districts experienced “flat to slightly down”, and six districts observed “slight declines” in activity.

This mixed picture reflects the diverse economic conditions across the country and points to a cautious economic outlook for the next six to twelve months, which is perceived to have “diminished” during the reporting period.

In terms of labor market dynamics, demand for labor “continued to ease”. Most districts reported either flat or modest increases in overall employment. Wage growth across most districts was characterized as “modest to moderate”. Notably, the report highlights “easing in wage pressures”, with several districts even reporting declines in starting wages. This trend could be a response to the overall economic slowdown and a signal of less competition for labor.

Regarding prices, the report notes a general moderation in price increases across districts, although prices remain at elevated levels. The expectation is for “moderate price increases to continue into next year”.

Full Fed’s Beige Book report here.

Cleveland Fed President Loretta Mester said yesterday monetary policy is “going to be accommodative for a very long time because the economy just needs it to get back on its feet.” Recovery is going to pick up momentum in the second half after vaccination. But until then, fiscal support on vaccine distribution and employment could help stabilize the economy. Also, “It’s going to take a while for the economy to get back to maximum employment,” she added.

Separately, Richmond Fed President Thomas Barkin said in a Financial Times interview that the economy still need support. “I still think there are a lot of people out of work who need a bridge to the other side, and I am supportive of what we can do to help them.” He expected some “short-term price volatility” but there are deflationary risks too. He’s keeping the focus on “medium-term” inflation expectations.

FOMC rate decision is the major focus today and Fed is widely expected to keep the fed funds rates unchanged at 1.50-1.75%. Fed officials have repeatedly noted that policy is in the right place for now. There won’t be any further adjustments unless there are material changes in the economic outlook. We’d expect Fed’s statement to reflect such message again.

Attentions would, therefore, be mainly on the new economic projections, in particular, federal funds rate projections. As in September’s meeting, median rate projections were at 1.9% in 2019 and 1.9% in 2020, before rising to 2.1% in 2021 and 2.4% in 2022. Current rates are already below these levels and thus, downside revisions should naturally be seen. Fed is unlikely to revise down 2020 projections to an extent that reflects another rate cut. Thus, the main market moving part would on the how fast Fed officials expect rates to climb back in 2021 and 2022.

Here are some suggested previews:

• Fed to Leave Policy Rate Unchanged in December, and Likely for 2020
• FOMC Preview: Fed On Hold For At Least A Couple Of Meetings
• Fed Meeting: No Fireworks, Focus on the ‘Dots’
• FOMC Preview: Rates On Hold