Interest rates forecasts have shifted upward at the Fed’s meeting yesterday. The expected median fed funds was 1% at the June 2014 meeting, it was at 1.375% yesterday at the September meeting.
The graph below shows the cumulated distribution of participants’ forecast in June and in September. I also put on the graph the median figure for each forecast.There is an important shift of the median between June and September but distribution profiles are not so different. If we want to find a real gap between the two curves, we have to look at the point 1.875%. Four participants in September expect this level at the end of 2015. This reflects very different point of view between them and Janet Yellen.
In June, 16 members was able to vote and the median, 8, was at 1%. In September, the number of voters was 17 and the median, 9, was at 1.375%.
All these elements are just guidance not the true profile. We have no experience on this type of forecasts and we don’t know how credible is the number expected at the end of 2015.
What we know is that the Fed’s president has the major role in determining the monetary policy stance It was true for Greenspan, Bernanke and it seems to be true also with Janet Yellen. We don’t know what was her vote as they are anonymous. But her speech was not hawkish and I don’t think she is at 1.375%. The good information would be to know her own forecast, that would be the relevant information. The two curves just reflect the mood of the FOMC participants, not the future profile.