Getty Images Federal Reserve officials will release a policy statement, dot-plot and economic projections on Wednesday. Slide 1 of
Wall Street and the press will be poring through the Federal Reserve’s material for clues about the potential path of interest rates starting a 2 p.m. Eastern.
The Fed may rewrite its statement to get away from the “workmanlike” pace of one quarter-point rate increase every three months. And economists will be watching to see if the Fed predicts a rising unemployment rate in 2021, an indicator of an economic slowdown.
The following are three public pronouncements the Federal Open Market Committee will make on Wednesday and the possible changes that Fed watchers have flagged as important.
Possible changes to the Fed policy statement.
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Since the Great Recession, the Fed has focused its forward guidance on calming market fears that it would raise interest rates too abruptly.
But now, with the economy strong and inflation rising, the Fed wants to give less forward guidance so it can have more flexibility.
“We suspect the FOMC will signal in its statement the need for policy, moving forward, to potentially become more nimble when it comes to rate hikes compared to the current workmanlike (quarterly) pace. This could mean longer-than-one-meeting pauses or none at all,” said Michael Gregory, deputy chief economist at BMO Financial Group.
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Fed officials will have to provide their first estimates of what the economy may look like in 2021.
The key here for analysts is whether the Fed signals that the unemployment rate will move higher. That’s a sure sign of a slower economy but also could signal a looming recession.
Most economists think the Fed will decline to give much information about 2021 as it remains so far in the future. But economists at Goldman Sachs, who are in the camp expecting the Fed to be hawkish, think the Fed will signal that rate hikes are starting to bite.
Expectations of the Fed’s “dot plot,” where officials plot their expected path of interest rates hikes.
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The Fed’s dot plot remains its most powerful forward guidance tool, said former Fed Governor Larry Meyer, in an interview with MarketWatch. The dot plot are the projections of each FOMC participant’s assessment of the appropriate midpoint of the target range for the federal funds rate.
Related: Fed has to start considering the risk of a recession, former governor says
No major changes are expected. Rather, Fed officials will consolidate their prior forecasts of an additional rate increase in December, followed by three in 2019 and one in 2020. In the first forecast for 2021, the Fed will stick to the safe territory of steady rates, economists said.
The only median that is going to shift forward might be the long-rate dot to 3% from 2.875% as new Fed Vice Chairman Richard Clarida gets to provide his estimate for the first time.
