September 2015 Economic Projections: PCE Inflation to Fall More

FOMC September 2015: The Storm That Never Came

(Continued from Prior Part)

Summary of economic projections

The FOMC (Federal Open Market Committee) releases the SEP (Summary of Economic Projections) in four of the scheduled eight meetings in a year. In it, FOMC members present their projections on three variables:

• Economic growth

• Unemployment rate

• PCE (personal consumption expenditures) inflation

The SEP presents both the range of the projections—the lowest to highest figures projected for an indicator—and also the central tendency of the projections. This excludes the three highest and three lowest projections for the variables. This time, the Federal Reserve added the median value of their projections as well. They indicated this in their July 2015 meeting minutes.

Let’s look at the PCE inflation expectations first.

PCE inflation

The central tendency of FOMC participants’ PCE inflation projections for 2015 stands reduced from 0.60%–0.80% in June to 0.30%–0.50% in September. The range of expectations for PCE inflation for 2015 have fallen from 0.60%–1% in June to 0.30%–1% in September. This shows the impact that crude oil prices (USO) (DBO) are having on PCE inflation in the near term.

However, policymakers expect the impact on crude oil prices to dissipate and inflation to start rising by 2016. The range of expectations for PCE inflation for 2016 and beyond didn’t change from June. There was only a slight change in the central tendency and median for these periods.

A fall in crude oil prices pushed gasoline prices down. It hurts marketers and retailers like Marathon Petroleum (MPC), Valero Energy (VLO), and Alon USA Energy (ALJ).

Core-PCE inflation

The central tendency of projections for core-PCE inflation for 2015 didn’t change between June and September. It fell slightly for 2016 and 2017. This shows that there will be some impact of a fall in import prices, but not enough to suppress core-inflation by a large quantum.

The median of expectations about core inflation actually rose slightly for 2015 in September. However, they were reduced slightly for 2016 and 2017 from the June projections.

In the next part, let’s look at a projection for the other two variables—economic growth and the unemployment rate.

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - Benefit of Hindsight: The Fed Wasn’t Going to Raise the Rates

• Part 2 - Why Did the Fed Hold Off the Rate Hike in September 2015?

• Part 3 - Markets React to the Fed’s September 2015 Meeting Statement