Economic Pulse: The "Harbinger of a Deterioration in Economic Activity?"

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The minutes from the March 19-20 FOMC meeting—released yesterday—provide some insight into why the Committee pivoted from forecasting two rate hikes in 2019 to zero—all in the span of three months. In line with the recent reduction in the IMF’s outlook for global economic output, the Committee cited risks to foreign growth as a primary reason for their downgraded assessment. Nonetheless, reading between the lines, it’s clear that many members of the Committee do not see risks to either growth or inflation as balanced.

While upside risks to the forecast assembled by the Fed staff include “household spending and business investment that could expand faster than projected” as well as “still strong” labor market conditions and “upbeat” consumer sentiment, on the downside, the “recent softening in a number of economic indicators” have the potential to be the “harbinger of a substantial deterioration in economic activity.” Below, we highlight the risks the FOMC sees to its forecast that warrant “patience” with regard to the conduct of monetary policy.

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