Survey Says…

September 28, 2023

This chart description is for illustrative purposes only and its accuracy cannot be guaranteed. Please see full disclosures at end of PDF document in the web post. General description: Column chart reports recent survey results from the Summary of Economic Projections by the Federal Open Market Committee. Chart subtitle: The most recent Summary of Economic Projections from the Federal Reserve suggests a moderation of both inflation and the federal funds rate over the coming years. Chart source: Federal Reserve Summary of Economic Projections as of September 20, 2023. Chart visual description: Y-axis is labeled “Median Submission of FOMC Participants” and ranges from 0% to 6%. X-axis is labeled with four categories for various data FOMC Participants project for 2023, 2024, 2025, 2026, and Long-Run, with more recent years in dark shade up to a light shade for 2026. Long-Run column is gray across all categories. Federal Funds Rate is plotted in blue, Change in Real GDP in purple, Unemployment Rate in orange, and PCE Inflation in green. Chart data description: As follows, data respectively for 2023, 2024, 2025, 2026, and Long-Run. Fed Funds Rate: 5.6%, 5.1%, 3.9%, 2.9%, 2.5%. Change in Real GDP: 2.1%, 1.5%, 1.8%, 1.8%, 1.8%. Unemployment Rate: 3.8%, 4.1%, 4.1%, 4.0%, 4.0%. PCE Inflation: 3.3%, 2.5%, 2.2%, 2.0%, 2.0%. End chart description. See disclosures at end of document.

During its September meeting, the Federal Open Market Committee (FOMC) opted to keep its policy rate unchanged — within a range of 5.25% to 5.50%. In doing so, policymakers signaled a commitment to keeping rates elevated over the coming months in order to achieve the central bank’s long-run inflation target of 2.0%. Fed officials appear to be taking a deliberate and cautious approach to recent policy now that interest rates have entered firmly restrictive territory and could potentially hinder growth. The Fed also noted the “lags with which monetary policy affects economic activity” in its September FOMC statement. These lagged effects would likely be an argument in favor of slowing the pace of tightening since the impact of previous rate increases may not yet be reflected in current economic data. To that point, the most recent Summary of Economic Projections, which in part serves as an assessment of FOMC participants as it relates to appropriate monetary policy, indicates that a majority of officials favor one more rate hike in early November before policy loosening in 2024 and beyond.

The September Summary of Economic Projections yielded additional interesting pieces of information related to how policymakers are viewing the current and future macroeconomic landscape. For instance, the median response of FOMC participants for 2023 GDP growth was 2.1%, which represents a significant increase from the 1.0% figure reflected in the June survey. The median estimate of long-run GDP growth in the September survey was 1.8%. Additionally, the September survey suggests that the median FOMC official expects the unemployment rate to tick up to 4.1% in 2024 before moderating to 4.0% over the longer term. Finally, median estimates for PCE inflation, which is the preferred measure of the Fed, sat between 2.0–2.5% over the coming years.

While it is encouraging to see inflation expectations moderating without substantial decreases in future growth or material increases in the projected unemployment rate, the Fed still faces obstacles related to obtaining these desired outcomes, including a potential government shutdown. Marquette will continue to monitor the actions of the central bank and keep clients informed accordingly.

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