FOMC Sets New Outlook on Rate Hikes, Inflation, Unemployment and Tapering

Bond tapering will continue by another $10 billion, down to $35 billion per month. The Federal Reserve will trim its agency mortgage-backed securities purchases to $15 billion per month rather than $20 billion per month, and longer-term Treasury securities will be trimmed to $20 billion per month rather than $25 billion per month. The Fed will also continue its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.

The majority of Fed officials expect rate hikes in 2015, with a steeper rate rise in 2015 or 2016. Some 15 of 16 officials see rates at or below the 0.25% Fed Funds rate through the end  of 2014. 11 of 16 see Fed Funds at or under 1.25% through the end of 2015. Over half still expect that Fed Funds will be at or under 2.5% through the end of 2016. Three of the FOMC members do not expect rate hikes to begin until 2016.

For GDP projections, the FOMC is lowering its growth to 2.1% to 2.3% from 2.8% to 3.0% in 2014. GDP growth is now put in a range of 3.0% to 3.2% in 2015, followed by 2.5% to 3.0% in 2016.

Unemployment expectations have also been tweaked.  The new expectations are 6.0% to 6.1% in late 2014, 5.4% to 5.7% in late 2015, and 5.1% to 5.5% in late 2016.

The FOMC inflation targets are basically the same. That is for 1.5% to 1.7% in 2014, followed by 1.5% to 2.0% in 2015, and 1.6% to 2.0% in 2016.

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