FOMC Preview: Economic projections 'matters most' - BAML

BAML’s US economics team noted that the SEP, in particular, will be influential on financial markets, especially the FOMC member projections for the outlook for the Fed funds rate, known as “the dots”.

Key Quotes:

“We do not expect a change in the dot plot from the September meeting” 

“That said, the risks are asymmetric in that there is a better chance of a move higher than lower in the trajectory. We think the dots for next year are the most vulnerable — by our calculation, only two members need to shift the dots higher to move up the median expectation for 2017 or 2018 by 25bp”

“We think the median unemployment forecast for 2016 will fall to 4.7% from 4.8% given the recent drop in the unemployment rate. We also expect GDP growth to be revised higher this year to either 1.9% or 2.0% on the back of stronger 2H GDP tracking” 

“Looking ahead to the next three years, we think the risk is for upward revisions to inflation”

“We think Yellen will reiterate such in order to note that the Fed is still proceeding carefully with a gradual hiking cycle and that monetary policy remains accommodative” 

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