NY Fed Staff See Faster Core PCE Moderation Than FOMC Median

One component of the FOMC’s economic projections that stood out on Wednesday was the core PCE forecast for 4Q23 only being revised down from 3.9% to 3.7% Y/Y, with most analysts looking for a drop to 3.6% or lower.

• It came with a central tendency of 3.6-3.9 after the 3.7-4.2 in the June SEP.
• Interestingly, the NY Fed has updated its DSGE model forecast today (see here) which was left at 3.7% from the same reading in its June release for 4Q23. Whilst these are staff estimates and clearly not the dot that is submitted, it nevertheless helps give an idea of what NY Fed’s Williams might have been going into the meeting with.
• The forecast does however now pencil in a sharper moderation in 2024, with 2.2% (from 2.5% in June) after that 3.7% in 4Q23. This is below the FOMC median of 2.6% in 4Q24 (central tendency 2.5-2.8) and also 2.3% in 4Q25 (CT 2.0-2.4)
• The faster moderation in core PCE comes despite a stronger growth outlook, with NY Fed estimates of GDP growth seen at 1.9% Y/Y (from 1.0) in 4Q23 and 1.1% Y/Y (from 0.7%) in 4Q24.
• It also comes with a higher perceived real natural rate of interest, at 2.5% (from 2.2) in 4Q23 and 2.2% (from 1.8) in 4Q24, declining to 1.6% by end-2026.

Source: NY Fed