Fed Enters Brave New Forecasting World Beset With Same Old Data (Actual data look very similar to those Fed faced in December)

This is a syndicated repost courtesy of Confounded Interest. To view original, click here. Reposted with permission.

The Fed’s Open Market Committee (FOMC) is meeting today and tomorrow to decide what to do. Well, it is pretty much a foregone conclusion that the Fed Funds Target Rate (upper bound) will be raised to 1.75% from 1.50%.

fomceratge.png

But what is different at this meeting than at the last meeting in 2017? In short, GDP is expected to growth at a faster pace and inflation is rising ever so slowly.

(Bloomberg) -By Jeanna Smialek- Federal Reserve officials will face an unusual predicament as they update their economic projections this week: Everything has changed but the data.

In many ways, it feels like a brave new world. Chairman Jerome Powell makes his debut with an expected interest-rate increase, replacing Janet Yellen. Financial conditions have tightened and the five rate increases under Yellen since December 2015 are finally being felt in the real economy, at least in mortgage rates. Tax reform has passed and Congress is lifting government spending caps, boosting the near-term growth outlook.

Yet Fed officials swear by their data dependence, and the numbers look strikingly similar to when the policy-setting committee last met. The inflation pickup officials have been waiting for still hasn’t materialized, wages are ticking higher but hardly surging, economic growth is chugging along and the job market continues to pull people off the sidelines.

fedpicture.png

And if we look at the Rudebusch Model for the Taylor Rule, it is screaming for a Fed rate hike even with unemployment rate at 4.1% and Core PCE Inflation at 1.52%.

rudybush.png

While The Fed forecasts GDP to grow at 2.5%,

gdpfedfore

the Atlanta Fed’s GDPNow Forecast for Q1 has fallen to 1.8%. Be warned! This is one noisy forecast model!!

atfedq1

Home prices keep growing at over twice that of hourly wage growth.

hoyswage.png

Part of The Fed’s Brave New World is trying to cope with housing prices rising over twice as fast as wage growth.

Brave-New-World-small-logo-623x261.png

 

Wall Street Examiner Disclosure:Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. I am a contractor for Money Map Press, publisher of Money Morning, Sure Money, and other information products. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. In some cases I receive promotional consideration on a contingent basis, when paid subscriptions result. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. No endorsement of third party content is either expressed or implied by posting the content. Do your own due diligence when considering the offerings of information providers.

Leave a Reply