Expectations are the FOMC will announce a 50bp rate increase in the federal funds rate at the meeting this week and increase the “terminal rate” to 5-5.25%.
emphasis addedFrom Goldman Sachs: “Aside from a widely expected 50bp rate hike, the main event at the December FOMC meeting is likely to be an increase in the projected peak for the funds rate in 2023. We expect the median dot to rise 50bp to a new peak of 5-5.25% … We continue to expect three 25bp hikes in 2023 to a peak of 5-5.25%, though the risks are tilted toward 50bp in February.”
The unemployment rate was at 3.7% in November. So far, the economic slowdown has barely pushed up the unemployment rate, and the FOMC will likely revised down the 2022 projection but might revise 2023 up slightly.
As of October 2022, PCE inflation was up 6.0% from October 2021. This was below the cycle high of 7.0% YoY in June. There was a surge of inflation in Q4 2021, so with less inflation in Q4 this year, it is possible inflation will decline to the top of the projected year-over-year range in Q4.
PCE core inflation was up 5.0% in October year-over-year. This was below the cycle high of 5.4% YoY in February. Core inflation has picked up more than expected and will likely be above the September Q4 projected range.
Core Inflation projections of Federal Reserve Governors and Reserve Bank presidents, Core Inflation1 Projection Date202220232024Sept 20224.4 to 4.63.0 to 3.42.2 to 2.5