La Française: Spotlight on the dot plot at upcoming Fed meeting

La Française: Spotlight on the dot plot at upcoming Fed meeting

21 september 2021

Fed
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By François Rimeu, Senior Strategist, La Française AM

As widely expected, at the Federal Reserve’s next policy meeting on Sept.21-22, the Federal Open Market Committee (FOMC) will announce the start of tapering at upcoming meetings, most likely during the November meeting, effective beginning of December.

As the July minutes stated, the US economy reached its goal on inflation and was “close to being satisfied” with the progress of job growth. We do not think that disappointing job creation figures for the month of August will incite the FED to further postpone tapering.

  • We expect the FOMC to keep policy rates unchanged.
  • The « dot plot » might be the most important announcement of this FOMC meeting. We do not think the 2022 and 2023 median dots will change (no hike in 2022, and two hikes in 2023) but 2022 is definitely a close call. We expect the 2024 median dot to show three hikes.
  • We expect the SEP (Summary of Economic Projections) to indicate lower growth in 2021 (from 7.0% to 6.0%) but higher GDP in 2022 (from 3.3% to 3.5%) and unchanged growth for 2023 (2.4%).  We expect the new 2024 projection to show 2% growth.
  • We expect the FOMC will revise its forecast for higher inflation figures (Personal Consumption Expenditures) with projections moving up from 3.4% to 4.2% in 2021, from 2.1% to 2.2% in 2022 and unchanged in 2023 at 2.2%. We expect median inflation expectations at 2.1% for 2024.
  • We expect FED Chief Powell to maintain an accommodative tone and to downplay any strong potential signals from the dot plot. He will also dissociate the start of asset-purchase tapering from policy-rate hikes.

As was the case in June, a more aggressive pace of hikes (dot plot) could push front-end interest rates higher, but this is not our base case scenario.

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