The FOMC statement of June 19 did indeed offer a more dovish outlook for monetary policy and the Summary of Economic Projections (SEP) dot plot had 9 policymakers expecting the fed funds rate anticipating the fed funds rate above 2.25% at year-end and 8 policymakers with the rate below 2.25%.
The statement cast the labor market as still strong while the economy was growing at a moderate (previously solid) pace. The statement was unequivocal that “overall inflation and inflation for items other than food and energy are running below 2%” with consumer inflation expectations “little changed” and market-based inflation compensation down.
The statement said, “The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes, but uncertainties about this outlook have increased. In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.” Pivotal here is the perception of heightened risks to the outlook and low inflation, and whether that will trigger a rate cut as the “appropriate” action to maintain growth and/or prevent a downturn.
The dissenting vote from St. Louis Fed President James Bullard is hardly a surprise given his remarks a few weeks ago.
There was no change in the median forecast for GDP in 2019 at up 2.1%, 2020 was revised up a tick to 2.0%, and 2021 was unchanged at 1.8%. The longer-run expectation remained at 1.9%.
The labor market was forecast as tighter than in the March forecast. The unemployment rate was revised down a tenth to 3.6%, as were the forecasts for 2020 at 3.7%, 2021 at 3.8%, and the longer-run at 4.2%.
It was in inflation forecasts that the most change was visible. The PCE deflator was revised down three-tenths to 1.5% in 2019, and 2020 was down a tenth to 1.9%, with 2021 unrevised at 2.0% and the longer-run at 2.0%.
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