The most important part of Fed’s new projection is that policymakers are expecting possibly one 25bps rate cut in 2020, instead of one 25bps rate hike. Median federal funds rates is at 2.1% by the end of 2020, revised down from 2.6%. Nevertheless, for this year, median federal funds rates forecast is unchanged at 2.4%. Fed indeed expect interest rate to go back to 2.4% in 2021.

Inflation appears to be main driver behind the forecasts. Core PCE inflation projections in 2019 and 2020 are both revised down. Though, it should b noted that GDP growth for 2020 was revised up, likely due to the rate cut. Unemployment rate forecasts are revised down for whole horizon.

Overall, the economic projections are in-line with Fed’s statement that “will act as appropriate” to economic data. But the so called “insurance” rate cut may not come as early as some expected.

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Here are some details.

GDP growth:

  • 2019 at 2.1%, unchanged
  • 2020 at 2.0%, revised up from 1.9%.
  • 2021 at 1.7%, unchanged.

Unemployment rate:

  • 2019 at 3.6%, revised down from 3.7%.
  • 2020 at 3.7%, revised down from 3.8%.
  • 2021 at 3.8%, revised down from 3.9%.

Core PCE inflation:

  • 2019 at 1.8%, revised down from 2.0%.
  • 2020 at 1.9%, revised down from 2.0%.
  • 2021 at 2.0%, unchanged.

Federal funds rate:

  • 2019 at 2.4%, unchanged.
  • 2020 at 2.1%, revised down from 2.1%.
  • 2021 at 2.4%, revised down from 2.6%.
  • Longer range rate at 2.5%, revised down from 2.8%.

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