After reading through the Fed’s latest economic projections (April 2012) I’ll concede that the general consensus among FOMC members didn’t change dramatically since January. Most members still aren’t expecting a move until 2014. However, we’ve already seen that some of the Fed’s past expectations have been completely off-the-mark. These latest projections show a target fed funds rate that’s even more volatile than the projection released just three months ago. Here are a few changes that I noticed:
- The final BIG change may come sooner
In a recent post I talked about the dramatic +400bp shock to come – maybe. That change still might occur, but at least two FOMC participants think it might occur sooner than they originally predicted. The January predictions showed two policy firming holdouts in 2016. April’s projections show all policy firming actions happening no later than 2015.
- At least one member sees a +100bp change in the near future
Back in January none of the members predicted a change of more than +75bp for 2012. Now at least one participant predicts a change of +100bp by the end of 2012 (only 8 months to go!)
- The change in 2014 might be dramatic
Since the documentation doesn’t track individual member predictions it’s hard to put together a clear picture of the 2014 forecast. But by the process of elimination you can see that at least one member thinks Fed Funds will change between +175bp and +250bp in 2014. Analysts can puzzle over rate ramps if they want to, but +175bp to +250bp in one year sounds much more like a rate shock to me.
Will the general consensus be right? I have no idea. Even if they are it still looks like it could be a really bumpy ride.