Stocks and Treasuries should like today's FOMC Statement. The Fed took a cautious approach to the forecast at today's FOMC Meeting, keeping them consistent with a gradual approach to tightening. It looks for GDP Growth to slow sharply from the 4+% pace of Q218 and perhaps Q318, keeping its forecast of growth reverting to the 1.8-2.0% trend over the next two years. Inflation is expected to stay around 2.0% and the Unemployment Rate to stabilize in the 3.4-3.8% range. Their inflation and unemployment forecasts were little changed from the prior set of Central Tendency forecasts.
The upward revision to 2018 Real GDP Growth risks being insufficient, however. It was raised to 3.0-3.2% (was 2.7-3.0%). This implies 1.2-2.0% for Q418 Real GDP Growth, given the 3.2% H118 pace and assuming the Atlanta Fed model's Q318 forecast of 4.4% is correct. The risk is that Q418 Real GDP Growth will be substantially stronger. Next week's key US economic data -- the September Mfg ISM and Employment Report -- are likely to confirm a continuation of strong growth at the end of Q318.
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