Federal Reserve officials have increased their expectations for economic growth and inflation this year, materials released by the central bank showed Wednesday.
The Federal Open Market Committee left its interest rate target unchanged and said it would continue to purchase around $120 billion of bonds each month, while noting that the economy had continued to improve and vaccinations had weakened the grip of the pandemic.
But some Fed officials have changed their views on how fast inflation and the economy will growth this year, lifting the median forecast in the Summary of Economic Projects (SEP) the Fed released at the end of its two day meeting Wednesday. The last time the Fed released the projections of officials was after the March meeting.
“The main message I would take away from the SEP is that many participants are more comfortable that the economic conditions in the committee’s forward guidance. And that would be a welcome development,” Fed chair Jerome Powell said in a press conference following the meeting.
The median view of inflation was massively increased, jumping from 2.4 percent at the March meeting to 3.4 percent for this year. Core inflation, which excludes food and energy prices, is now seen as rising 3.0 percent from 2.2 percent.
The economy is expected to grow 7 percent this year, an upgrade from 6.5 percent.
Interestingly, the officials did not change their view on unemployment. This is expected to fall to 4.5 percent by year’s end, the same as it was at the March meeting. So more growth and more inflation will not lead unemployment lower, in the Fed’s view. That suggests that Fed officials suspect that factors such as enhanced unemployment benefits are keeping some Americans off payrolls longer than they otherwise would be.
Unemployment is expected to fall to 3.8 percent by the end of 2022, one-tenth of a percentage point lower than it was at the March meeting.
The projections for GDP for next year and 2023 were left unchanged. The inflation projections, both core and headline, for 2022 were increased by one-tenth of a percentage point.
Fed officials also moved up their view of when their interest rate target would rise. At the March meeting, the median projection had no rate hikes through 2023. Now it has two one-quarter of a point hikes projected for that year.