Fed: Forecast From 5 Major Banks

The Federal Reserve is set to leave its policy unchanged but publish closely-watched forecasts for growth, inflation, employment and interest rates. Markets foresee an earlier increase in borrowing costs than the Fed and fear a bump up in inflation. 

Federal Reserve Chair Jerome Powell will hold a press conference at 18:30 GMT. As we get closer to the release time, here are the forecasts by the economists and researchers of 5 major banks.

Capital Economics

“We expect the Fed to leave policy unchanged at its mid-March meeting, though officials will try and use the statement and updated economic projections to push back on market expectations that rate hikes are rapidly coming into view. In line with recent comments, we expect Chair Jerome Powell to sound relaxed about the recent rise in longer-term bond yields, though he is likely to leave the door open to intervening if yields were to rise substantially further.”

Rabobank

“The FOMC is likely to upgrade the economic outlook and its economic projections now that economic data have improved and the American Rescue Plan has been signed into law. At the post-meeting press conference, Fed Chair Powell will have a difficult job pushing back against market expectations of higher inflation and earlier policy rate hikes. An upward shift in the dot plot could make his job even more difficult. Even if the rise in yields in itself would not be a problem to the economic recovery, it could cause cascade effects that would warrant intervention by the central bank. If pushing back verbally against market pressures does not suffice in the coming days and weeks, the next step for the Fed could be an adjustment to the asset purchase program. If the reflation trade really gets out of hand, the FOMC may be forced to revisit the option of yield curve control.”

Westpac

“We expect that, while some members of the Committee will look to bring forward their anticipated timing for the first fed funds rate hike(s), the median will remain at or very close to zero to the end of the forecast period. While not included in the forecast table, any guidance on triggers for the tapering of asset purchases will also be closely scrutinized.”

TDS

“Fed officials are likely to raise their 2021 growth projections sharply. We expect changes to inflation and funds rate projections to be much more modest, however; the median “dot” will probably still show no tightening through end-23, and the tone will likely remain dovish. That said, the mean dot will probably move up slightly, and we don’t expect officials to signal any major problem with the recent backup in bond yields.”

Deutsche Bank

“The Committee is likely to update their economic projections with a substantial upward revision to expected growth, a lower unemployment forecast and a modestly higher inflation trajectory following the passage of President Biden’s $1.9tn COVID-19 relief package. Despite this, Chair Powell is likely to emphasise that significant uncertainties remain and that the recovery has a long way to go, particularly the labour market. Powell is also likely to reiterate that any discussion of tapering is ‘premature’ and that it will likely be ‘some time’ before the Committee can even assess if their goals have been achieved. On the topic of rising yields, he will likely once again emphasise that the Fed has the tools to deal with issues as they arise and that they would respond to disruptive or persistent tightening of financial conditions as necessary. It’s fair to say it’s a pivotal meeting though.”