The Summary of Economic Projections
The SEP (Summary of Economic Projections) is released in four of the eight scheduled meetings of the FOMC (Federal Open Market Committee). In it, the FOMC members present their projections on three variables:
- economic growth
- unemployment rate
- personal consumption expenditures (or PCE) inflation
The SEP presents both the range of the projections—the lowest to highest figures projected for an indicator, and also the central tendency of the projections that exclude the three highest and three lowest projections for the variables.
Changes to the SEP
Potential new developments from the Fed include a suggestion by the subcommittee on communications that median values of policymakers’ projections be published. Median refers to the middle value of projections by all policymakers, and this helps to provide readers with the exact midpoint of expected figures. Presently, readers arrive at the midpoint by considering the midpoint of the central tendency of the projections.
This helps investors by offering a better assessment of what policymakers project to be an indicator. This is a contrast to relying on finding the midpoint of the central tendency, which may not give you the correct assessment.
Doing away with the preferred year graph
The graph above may be missing from the SEP if the FOMC decides to implement a rate liftoff from its current levels. In addition to these changes, the FOMC may add a graphical representation of the uncertainty regarding the projections.
Although none of these changes should impact investments, they can certainly help to shape your view on the macro economy. These changes can also help you take medium- to long-term investment decisions on equities (IVW) and fixed income (BND) instruments. This could also help you make portfolio-level decisions on interest rate–sensitive sectors like banks (BAC) (DFS) and autos (GM), among others.
In the last article of this series, we’ll take a look at some steps that the Fed could possibly take next.