Michael Gregory, Deputy Chief Economist at BMO Capital Markets, is looking for the FOMC statement to sport at least a “nearly balanced” risk assessment and for Chair Yellen, in the subsequent press conference, to assert that the normalization process continues (their call is for a rate hike in June followed by December). Key Quotes “Between the statement and the presser, we expect the recent up-drift in both core CPI and PCE inflation to be portrayed as the stuff that builds Fed confidence, along with continued solid job creation. Also, we’re expecting to see some meaningful changes to the “dot plot”. December’s median projection called for 100 basis points of tightening in 2016 with a year-end level of 1.375% (15 of 17 participants favoured lift-off), 100 basis points in 2017 to 2.375%, 87½ basis points in 2018 to 3.25%, and a final 25 basis points in the “longer run” to 3.50%. We judge March’s median projection will reveal a lower level for policy rates along the entire profile, owing to fewer projected rate hikes this year and the tenuousness of the 2018 and longer run results. Eyeing December’s distribution of the 17 individual fed funds projections, it will only take two participants, whose forecasts were coincident with the median, to lower theirs a notch in order to pull down the median for both 2016 and 2017. Amid the recent weakness and volatility in financial conditions, and with two less meetings now on the docket, we look for the new median to call for 75 basis points of tightening in 2016 with a year-end level of 1.125%, but still 100 basis points in 2017 to 2.125% (putting both our calls 25 bps below the FOMC’s). For 2018 and the longer run, it will only take one participant (whose forecast is at the median) to lower theirs a notch. If, as we suspect, the new longer-run median becomes 3.25%, this means the FOMC’s projection will have fallen a full 100 basis points since the first projections were published in early 2012. This is a huge judgement change about longer-run U.S. growth and inflation prospects, which no doubt makes the market much more comfortable about pricing things “below the dots” For more information, read our latest forex news.