One of the things that went largely unnoticed about yesterday’s Federal Open Market Committee (FOMC) is how little consensus there is about the median term future.
According to the Summary of Economic Projections (SEP), the dots plot shows that Fed officials agree on the direction of the Federal Funds Rate this year and next. Eight FOMC participants view the target range as between four percent and 4.25%, while nine others see the range of 4.25 to 4.50%. One exception sees it 25% higher and one quarter percent lower.
The three highest levels of support are for the 2023 end projection. Six FOMC participants foresee an increase of 4.25 percent to 4.50 percent. Six others see 4.50% to 4.75 percent and six anticipate 4.75 percent to 5.0%. The target range is between 3.75 percent and 4.0% for one outlier. The point is that the Fed’s projections are pretty tightly clustered around three positions that are themselves close to one another.
Take a look at 2024. There’s no consensus at all. Each quarter-point increment between 4.75 and 4.50 percent, 4.25 to 4.50% and 4.25 to four has two officials. Four officials are needed for the 3.75-4% percent. For the two next quarter-point increments, there are three. The bottom has one participant for every quarter-point increment between 3.25 and three percent to 2.75 or 2.5 percent. These projections can be described as being all-over the map.
It was not always so. Eight forecasts were made in the 3.35% to 3.50% range during the June SEP. While there were some outliers, it was evident that the majority of forecasts fell within this range. Now there really isn’t. The most popular view at the September meeting—3.75 to four percent—attracts half as many participants as the most popular view did in June.
It’s a bit different. In June, half of the hawks had projections over the most famous view. Below the most popular view, there were six doves. The hawks, doves and center now dominate in both directions.
It’s no wonder Fed Chair Jerome Powell continuously emphasized just how uncertain the future is. He said this Wednesday. “These projections do not represent a Committee decision or plan, and no one knows with any certainty where the economy will be a year or more from now.”
Check out the complete article here