FOMC Preview: Focus on outlook for the federal funds rate - Goldman Sachs

Goldman Sachs Analysts out with their preview on what to expect from today’s FOMC monetary policy decision due at 18.00 GMT.

Key Quotes:

“We expect the FOMC to officially announce ... that balance sheet runoff will begin in October.

As the Fed has already communicated extensively about its plan for a gradual and predictable runoff, we expect markets to focus instead on the outlook for the federal funds rate.

The key question is whether the committee's expectations for the federal funds rate have declined in light of the surprising deceleration in the inflation data since the start of the year.

Several Fed officials have expressed reduced confidence in the view that the recent decline is a blip and that inflation will reaccelerate.

Despite ... stronger- than-expected CPI report, Fed officials will still be looking at year-over-year core PCE and CPI inflation rates that are three tenths and five tenths lower, respectively, than in March.

We therefore look for lower core inflation in the Summary of Economic Projections (SEP) and expect the "dot plot" to show a decline in the average projected funds rate path.

While risks are tilted to the downside, we still expect the median projection to continue to show a third rate hike this year, 3 hikes in 2018 and a longer-run funds rate at 3%.”