The Fed's economic and policy outlooks barely changed at today's FOMC Meeting. Whether it hikes the funds rate 1 or 2 more times this year will likely depend on the paths of economic growth, labor market conditions and inflation. The next hurdle for the stock market will be Trump's imposition of tariffs on Chinese goods, expected to be announced on Friday according to news reports. A Chinese retaliation will be a negative for stocks.
The Fed's "dots" barely changed between the March and June FOMC Meetings. Only one participant moved from 3 to 4 hikes for 2018. There was more of a reshuffling in 2019, but little change in the median expectation of around 3.0%.
Number of Dots Per Expected Funds Rate Level
2018
June March
2.5-2.75 1 1
2.25-2.50 7 6
2.00-2.25 5 6
1.75-2.0 2 0
1.50-1.75 0 2
2019
June March
4.0-5.0 0 2
3.75-4.0 0 1
3.5-3.75 1 0
3.25-3.5 3 3
3.0-3.25 4 2
2.75-3.0 4 5
2.5-2.75 1 2
2.25-2.5 0 0
2.0-2.25 1 1
1.75-2.0 1 0
1.50-1.75 0 1
The FOMC's Central Tendency for Real GDP Growth was essentially unchanged for both 2018 and 2019. The only change was that the lower bound for 2018 was raised to 2.7% from 2.6%. The upper bound remained at 3.0%. Fed officials still look for a slowdown to 2.2-2.6% in 2019. The Unemployment Rate outlook is slightly lower, but the inflation outlook was unchanged.
Market commentators have been highlighting the high 0.5% m/m May Total PPI as signaling an inflation problem. However, this is not the right message from the report. The underlying part of the PPI -- Total Excluding Food, Energy and Trade Services -- rose a slight 0.1% for the second month in a row. The report shows the benign inflation story remains in effect.
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