Phil Fed Survey: Economists Significantly Mark Down Infl Fcast

--2017 Headline CPI at 1.7%; Down from 2.3%; '18, '19 marked down 1pp

--2017 Core PCE at 1.5% vs 1.9% Previously, Now Expect 2% Infl in 2019

By Karen Mracek

     WASHINGTON (MNI) - Economists in the latest Philadelphia Federal Reserve

Bank's quarterly survey marked down their forecast for core and headline

inflation measures this year, while making slight downward revisions to 2018 and

2019 forecasts.

     In the most recent Survey of Professional Forecasters, the 39 surveyed

economists now expect inflation to reach the Fed's 2% target for core PCE in

2019, versus in 2018 in the previous quarter's survey.

     Measured on a fourth-quarter over fourth-quarter basis, the inflation

outlook is significantly weaker for headline CPI inflation and headline PCE

inflation in 2017. Headline CPI was downgraded to an expected 1.7% this year,

versus 2.3% in the last survey. Headline PCE was down to 1.5% forecast from 1.8%

in the previous quarter.

     The forecasted core measures of inflation were also marked down in the

third quarter survey. Core PCE, the Fed's preferred measure of inflation, is now

forecasted to be 1.5% this year, versus 1.9% expected last quarter. Core CPI was

marked down to 1.7% this year, from 2.2% in the previous survey.

     CPI showed a 1.7% year over year gain in July, data out Friday morning

shows. Core CPI, which excludes food and energy was also at 1.7% year over year.

     Inflation is front and center for monetary policymakers as they consider

whether another rate hike this year is appropriate. Before the CPI data was

released this morning, markets expected only a 30% chance of another rate hike

this year, most likely at the December meeting.

     Even while the forecasters in the Philadelphia survey marked down

substantially the inflation expectations for this year, they only minimally

downgraded their forecasts in 2018 and 2019. Almost all the measures --

including PCE and CPI, headline and core -- were marked down one percentage

point.

     "Over the next 10 years, 2017 to 2026, the forecasters expect headline CPI

inflation to average 2.25% at an annual rate, down slightly from their previous

estimate of 2.30%," the survey said. "The corresponding estimate for 10-year

annual-average PCE inflation is 2.00%, also slightly down from the previous

estimate of 2.09%."

     While the inflation forecasts moved down, GDP expectations were little

changed. Real GDP is forecast to grow at an annual rate of 2.6% this quarter and

2.3% next quarter, both a rebound from the weaker than expected 1.2% in first

quarter GDP.

     On an annual-average over annual-average basis, the forecasters see real

GDP growing 2.1% in 2017, 2.4% in 2018, 2.2% in 2019, and 2.0% in 2020. The

survey showed the economists were more certain about their 2017 GDP forecast

than they were in the May survey.

     When it comes to the other side of the Fed's mandate, maximum employment,

the forecasters revised downward estimates of job gains to a monthly rate of

180,400 this year. But they increased their forecast for 2018 to 165,800

monthly, from the previous estimate of 162,800.

--MNI Washington Bureau;tel: +1 202 371-2121; email: karen.mracek@marketnews.com

[TOPICS: MMUFE$,M$U$$$]