Updated set of Fed projections suggests some slippage past a September take-off

The June FOMC statement and projections were in line with our expectations, said Barclays. The committee chose to upgrade its assessment of economic activity, in line with the stronger pace of incoming data, but leave the remainder of the statement unchanged. The committee describes economic activity as having expanded moderately, versus having slowed in the April statement. It now describes job growth as having picked up and underutilization of labor market resources as having diminished somewhat, whereas the April statement described the pace of job gains as having moderated and labor underutilization as changing little. 

Elsewhere, household spending is described as moderate and the housing sector as having improved somewhat. The committee sees business investment and net exports as soft, similar to its assessment in April and likely reflecting the ongoing adjustment in the energy sector and the labor dispute at ports on the West Coast.

Looking at the Summary of Economic Projections, the path of policy as expressed through the median of the "dot plot" flattened as we anticipated, notes Barclays. The median funds rate in 2015 remained at 50-75bp, but the median in 2016 fell by 25bp, to 150-175bp, and the median in 2017 also ticked lower by 25bp, to 275-300bp. 

That said, two participants now project an end-2015 funds rate of 0-25bp and five expect a target range of 25-50bp. In other words, seven participants expect no rate hike or only one rate hike this year, as opposed to April, when only three participants expressed this view. Therefore, even though the policy path flattened and the median expectation is for two rate hikes in 2015, the updated set of projections suggests some slippage past a September take-off. 

We believe this occurred since the central tendency for growth has been revised lower and unemployment higher in 2015. Some participants may feel this warrants fewer rate hikes in the near term, adds Barclays