CIBC Review of Latest FOMC

CIBC: "Both the statement, and the accompanying economic forecast, left room for the Delta wave to be a drag on near term prospects. The text conceded that the recovery in the sectors most vulnerable to the virus has been slowed by the recent upturn in cases, and continues to mention Covid as the key risk to the overall economic outlook. The median real GDP forecast for 2021, on a Q4-over-Q4 basis, was cut by more than a percentage point, to 5.9%, offset somewhat by a 0.5% bump up in next year's four-quarter pace (to 3.8%)."

• "But what's key is that the FOMC still expects to achieve 3.8% unemployment by the end of 2022, and 3.5% the following year. And while it sees core inflation cooling a bit to 3.7% by the end of this year, and 2.3% a year after that, end of 2022 forecast for core CPI is two ticks higher than where it stood previously.
• The result is that, in terms of tapering bond purchases, it still expects to begin that "soon", leaving the door open to an announcement at the next FOMC should the coming payrolls report look reasonably healthy, as we still expect. Moreover, recent inflation experience has the committee nudging up the timing of fed funds hikes.
• The median outlook now includes a quarter point hike next year (in line with our forecast), and added 0.4% to its forecast for the funds rate at the end of 2023, taking it to 1.0%, and reaching 1.8% by the end of 2024. That last call is still a shade under our forecast, but the longer run forecast remains at 2.5%, a figure we could be close to by mid-decade."