On the September FOMC

The SEP upgraded GDP, unemployment and inflation, pointing to a V-shaped recovery. At the same time, the “dot-plots” got more dovish. The language about maintaining accommodation until the Fed is “confident” that the virus crisis has past is gone, replaced by a lengthy explanation of the new inflation “make-up strategy.” We see all this as reflecting a new framework in which the Fed will let the economy “run hot,” tolerating inflation overshoots. Oddly, the SEP shows no such overshoot. As always, Powell takes the bloom off in the press conference by carping about the need for more fiscal stimulus.