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A Couple Of Thoughts On The Fed’s Growth Outlook

Here are my off-the-cuff thoughts on that as sent around to a couple of people this morning (and again, these are just my musings and should be treated as such).

No sooner will I put this out there than it will be proven spectacularly wrong, but hey, “them’s the breaks”, right?

So there’s apparently some disagreement as to whether the Fed will upgrade their growth outlook in the SEP on Wednesday – if “disagreement” isn’t the right word, then you could just say that in light of recent data (specifically retail sales and the GDP tracking forecast revisions it triggered), some folks are wondering whether it makes sense to upgrade the growth outlook again.

Here are my off-the-cuff thoughts on that as sent around to a couple of people this morning (and again, these are just my musings and should be treated as such):

There would seem to be a risk that if they don’t upgrade their growth outlook, it would signal a dovish lean or otherwise convey something they don’t want to covey about the economy at a time when the curve has resumed its flattening bias. Plus it could open up a can of worms where people start wondering how to reconcile the increasingly hawkish messaging (specifically: “from headwinds to tailwinds” which was parroted by Brainard after Powell said it) with a “failure” (scare quotes there intentionally) to upgrade the growth outlook in line with everyone’s expectations.

Plus – and I think this is probably important – they can always temper an upgraded growth outlook in the SEP by leaving the growth assessment in the statement largely unchanged, or even by tweaking some of the language in there. Also, in terms of the messaging, it seems like there’s more risk to not upgrading the growth assessment in the SEP now than there would be from having to downgrade it later.

Also consider this from Goldman: “While the upward growth revisions in the December SEP were large, they were less than half of the fiscal-boost estimates cited by Governor Brainard.”

Finally, the inflation pillar of the Goldilocks narrative is already in question (i.e. people are still worried about upside risks to inflation – the trade war threat and the decision to pile fiscal stimulus atop an economy running at full employment only add to those worries). So you probably don’t want to undercut the other pillar (i.e. robust growth) if you don’t have to.

And look, if they decide to eschew upward revisions to the econ forecasts in the SEP, well then you can go back to not taking me seriously, which I imagine won’t mark a particularly notable “downward revision” from where things stood prior to Wednesday.

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Finally, as a reminder, here are a couple of forecasts for the forecasts (and no, there are no typos there):

Goldman

GSFOMC

Barclays

BarcFOMC

BofAML

BofAMLFOMC

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