Wednesday’s announcement from the Federal Reserve brought no rate hike on fed funds. This was virtually as expected. There was only one vote to hike rates. What has changed is that the Federal Reserve has lowered its outlook for the economy. This is lower for the timing and size of fed funds rate hikes. It is lower for gross domestic product (GDP), even though unemployment forecasts are expected to be static.

One key change here is a muted expectation for Real GDP. The change in real GDP is now 2.2% in 2016, 2.1% in 2017 and 2.0% in 2018. This may be the same as issued in December for 2018, but it is a 0.2% drop for 2016 and a 0.1% drop for 2017.

The unemployment rate is now projected to be 4.7% in 2016, 4.6% in 2017 and 4.5% in 2018.

Inflation readings were also ratcheted lower by the Fed. The PCE inflation rate was shown to be 1.2% in 2016, 1.9% in 2017 and 2.0% in 2018, and the core PCE inflation was put at 1.6% in 2016, 1.8% in 2017 and 2.0% in 2018.

Where the larger drop is forecast now is in the fed funds targets. The Federal Open Market Committee (FOMC) is now putting its median forecasts for fed funds futures as follows:

• 0.9% in 2016, down from the December forecast of 1.4%
• 1.9% in 2017, down from the December forecast of 2.4%
• 3.0% in 2017, down from the December forecast of 3.3%

In short, the FOMC is now expecting for rates to be low for even longer.

24/7 Wall St. wanted to include the FOMC participants’ assessments of appropriate monetary policy. This is a target range or target level matrix for the federal funds rate, measured by the number of participants at each target range or target level.

Only one fed member sees 4% fed funds returning over the long run. There were five of them with 3.0% longer-run projections and seven with 3.25% longer-run projections.

The lowest fed funds target was 0.625% for 2016, while the highest (from four members) was 1.375%. The low for fed funds by the end of 2017 was from four members at 1.625%, and the highest was just one Fed member at 2.75%.

It is farther out where the big discrepancies are seen. In 2018, the lowest fed funds projection was 2.125% and the highest (by a full half-percent) was one at 3.875%.

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