Early FOMC preview | FT Alphaville

Early FOMC preview

Compared with the last FOMC meeting, the one next week could be a snooze.

It’s a two-day meeting, but there won’t be a presser afterwards or an updated Summary of Economic Projections when it ends. Just a statement.

Still, there are a few things that might happen, even if we won’t get the full picture until the minutes come out a few weeks later.

The most important item is that the committee will continue discussing whether to adopt explicit economic targets to determine when tightening (ie raising rates from exceptionally low levels) would begin, replacing the current approach of giving a calendar date, which now mid-2015.

This is tricky business, requiring that the FOMC members agree on which targets would be most appropriate — and if it ever happens, it would likely take another couple of meetings before it is introduced. But it is likely to be a major topic next week. A similar notion applies to the open-ended asset purchases which the Fed has said it would continue doing until unemployment improves substantially. A better idea of what “substantially” means might be helpful.

This passage was in the minutes to the last meeting:

At the conclusion of the discussion, most participants agreed that the use of numerical thresholds could be useful to provide more clarity about the conditionality of the forward guidance but thought that further work would be needed to address the related communications challenges.”

And Credit Suisse economists add further comments about the work being done by the communications committee in trying to arrive at consensus forecasts, also likely to be a topic:

A different conversation at the September 12-13 meeting concerned whether the FOMC should develop a single consensus economic forecast – perhaps in lieu of central tendency ranges? Implementation challenges to such a plan include 1) choosing the monetary policy assumptions underlying the consensus forecast and 2) deciding how FOMC participants can express their endorsement of the forecast (or lack thereof).

This discussion is also likely to be continued at the October 23-24 meeting. It is possible the FOMC will decide to publish consensus forecasts as soon as its December 11-12 meeting, when the Committee’s projections are scheduled to be updated.

A consensus forecast might help in clarifying some of the confusion over the anonymous individual forecasts in the Summary of Economic Projections, where it isn’t always clear whose views have shifted. But we don’t really know how much progress has been made in moving towards a consensus forecast, and could find out more in the minutes to next week’s meeting.

As for what will end up in the statement itself, here’s a thought from RBC strategists:

Characterization of the economy should remain one of “modest” growth while inflation language could shift marginally more hawkish given the recent run-up in headline CPI and the fact that it looks poised to accelerate further. The rub here, however, is that inflation expectations have actually drifted lower in recent months and the committee will cling to this as a sign that price pressures will remain contained.