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Goldman Revises FOMC Forecast After Third Consecutive CPI Miss

Courtesy of ZeroHedge. View original post here.

First RBC, now Goldman.

After core CPI inflation was lower than expected for the third consecutive month, and the year-over-year rate fell two tenths to +1.7%, Goldman has made some changes to what it believes the Fed will report at 2pm today. It now expects the FOMC statement to include a stronger acknowledgement of the recent soft inflation data, and its expectations for the Summary of Economic Projections “have become incrementally more dovish.”

The details:

Given further evidence of a more persistent core inflation shortfall, we now expect this afternoon’s FOMC statement to include a stronger acknowledgement of the recent soft inflation data. Specifically, we expect the committee to drop the word “somewhat” from the inflation characterization (from ” inflation continued to run somewhat below 2 percent”).

As shown in Exhibit 1, we also now expect the Summary of Economic Projections to continue to show a median of 3 rate hikes in 2018 (vs. our previous expectation of an increase to 3.5 hikes), as the hawkish impact of governor Tarullo’s retirement is now expected to be offset by a shift of one of “4-hikers” to three hikes in 2018.

We also now expect the 2017 Core PCE projection to decline by two tenths to +1.7% (vs. our previous expectation of a one tenth downgrade).

These developments also increase our conviction that the committee will lower its long-term unemployment rate projection (to 4.6%).

Exhibit 1: Our Updated Expectations for the June Survey of Economic Projections


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