More from Barclays preview of the Federal Open Market Committee meeting this week
I posted earlier on the bank's preview, but more now
In our view, the Fed has two goals for its September meeting this week:
- announce it will begin balance sheet normalization as described in the June 2017 Addendum to the Committee's Policy Normalization Principles and Plans
- and assess how much the underlying trend rate of unemployment has slowed.
An announcement on balance sheet normalization appears to be a foregone conclusion based on Fed communications.
- We expect the balance sheet to normalize in about three years at around $3.0trn.
- Actual runoff should be less than what is implied by the caps.
We do not believe the committee will reach consensus on the extent to which slower inflation is transitory and, in turn, how much "patience" is needed before proceeding with further policy rate normalization.
- Yet, we believe some members will reflect their view that some of the slowing in inflation will be persistent and mark down modestly their inflation forecast for 2018.
We do not expect the median policy rate path to change
- but we do expect the average federal funds rate projection to decline
- In sum, we do not see the September meeting as the time when the Fed changes tack aggressively in its efforts to get inflation back to 2.0%. Instead, we believe the committee will signal a modestly flatter interest rate path and increased concern, but no more.
And, a ps ICYMI:
The FOMC meet Tuesday and Wednesday this week, September 19 and 20
- The Committee will issue an updated Summary of Economic Projections
- Following the Statement there will be a press conference by the Chair, Janet Yellen