The Fed will conclude today its two days monetary policy meeting. In line with consensus estimates, we expect the US Central Bank to hike rates by 25bp to a 2.25-2.5% range. We think that the sign of weakening of global economy emerged over the last couple of months will not be enough to push the Fed to maintain monetary policy on hold as some economists forecasted.
In our view, the focus will be on the projections that the Fed will publish at the end of the meeting. With regard to GDP and unemployment rate projections, we expect only slight changes from September. Real GDP growth in 2019 could be revised down from 2.5% to 2.4% while the Fed could decide to wait for more information before downgrading 2020 GDP growth from 2% to 1.9%. We see a clear possibility of a further downward revision of PCE projection for 2019 from 2% to 1.9% and for 2020 from 2.1% to 2% amid the strong decline of oil prices (from USD72.5/per barrel at the time of September 26 monetary policy meeting to USD46.8/barrel). PCE core projections for 2019 could be revised down from 2.1% to 2.0% for both 2019 and 2020.
Only a downward revision of PCE estimates could justify the dot plot revision expected by markets. The EuroDollar futures are now discounting only one 25bp rate hike in 2019.