Leaked Fed Staff Forecasts Project Hike Pace Softer Than FOMC

Talking Points

• The Federal Reserve accidently released its staff projections from June five years early
• Most notable in the leaked document was a more dovish view for interest rates through 2015
• US Dollar index tumbles on the back of Federal Reserve leak

At 15:00 GMT, the Federal Reserve’s public website released projections for the last 2 quarters of 2015 and a 5-year economic outlook from the central bank’s staff. The data was inadvertently leaked on June 29th, and was made public by the Federal Reserve today. According to the staff projections, a forecast for one 25 basis point hike is on the horizon for 2015. That is notably more dovish than what the FOMC leadership itself has projected as of its most recent forecasts. Their consensus is calling for 50 basis points (to an average of 0.625%) of tightening - two 25 basis point increases - through the end of the year.

Building on the expected deviation from the Fed Board’s views, the staff projections increasingly diverged with dovish projections of a benchmark rate of 1.26 percent through the end of 2016 and 2.12 percent through 2017. That compares to their superiors’ expectations of 1.75 percent and 2.875 percent respectively.

Beyond the rate discrepancy, the Fed saw a stable outlook for the next 5-years and forecasted GDP in 2015 of 2.31%. Further out, the group sees GDP slowing to 1.75% in 2019 and 1.74% by 2020 The Fed added that the unemployment rate would stabilize at 5% through 2027 and inflation would stay below the 2 percent target through 2020.

The US Dollar Index - sensitive to the central interest rate - tumbled in response to the news. Dollar strength pronounced through 2015. A softened rate forecast from the Fed’s staff does not seem to have turned this bullish / hawkish outlook. The Greenback’s slip holds well within the broader bull trend fostered through the past 15 months.