FOMC forecast revisions

FOMC forecast revisions showed a surprising downshift in 2019 GDP forecasts but boosts for future years, alongside the expected trimming for the PCE chain price estimates and downward tweaks in most of the jobless rate forecasts that reflect recent tight labor market data. The dot plot forecasts were lowered to reflect consensus forecasts of no policy change from the current 1.625% rate through 2020, though four policymakers expect one rate hike in 2020. Policymakers expect a rate climb past 2020, though with levels that are ratcheted down to reflect the October rate cut. The Fed's GDP central tendency for 2019 Q4/Q4 GDP growth was lowered to 2.1%-2.2%, which is well below our own 2.4% estimate. The Fed's chain price central tendencies were lowered to 1.4%-1.5% for the headline and 1.6%-1.7% for the core, versus our estimates of 1.5% and 1.6%. The 2019 jobless rate central tendency was lowered to 3.5%-3.6%, hence including the current 3.5% jobless rate. Analysts saw downward revisions in the low-end long-run assumptions for both the Fed funds rate and the jobless rate, as the Fed is increasingly associating a lower neutral rate and a larger Fed portfolio with a lower noninflationary jobless rate. page for a table of assumptions for the Fed's revised forecasts.