Fed officials sharply raise their rate and unemployment forecasts, cut GDP

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Federal Reserve officials have sharply raised their expectations of interest rates, inflation and unemployment, a summary of their economic forecasts showed on Wednesday.

The median unemployment forecast for Fed officials at the September monetary policy meeting rose to 4.4 percent for next year, from 3.9 percent at the July meeting. The forecast for 2024 was raised from 4.1 percent to 4.4 percent.

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Inflation is now estimated at 2.8 percent by the end of next year, up from 2.6 percent and 2.3 percent the year after, up from 2.2 percent. The figure for the end of this was revised to 5.4 percent from 5.2 percent. In July, the most recent date available, the personal consumer price index – the Fed’s preferred measure of inflation – rose 6.3 percent.

Core PCE prices, excluding food and energy prices, are now up 5.4 percent at the end of this year and 2.8 percent next year, up from June expectations of 5.2 percent this year and 2. .6 percent next year.

Officials now see the Fed’s rate target at 4.4 percent by the end of this year, pointing to an expected range of 4.25 to 4.5 percent. That’s 125 basis points more in increases in the next two meetings, apparently suggesting Fed officials see another 75 basis point increase followed by a 50 basis point increase. At the July meeting, Fed officials predicted the target rate would rise to just 3.4 percent.

Expectations for next year rose to 4.6 percent, higher than most private sector analysts’ estimates and well above the 3.6 percent forecast in July. The next year, the interest rate target will fall to 3.9 percent, from 3.4 percent in June.

The Fed also sees much less economic growth this year. At the July meeting, Fed officials expected GDP to grow 1.7 percent this year. Now they expect only 0.2 percent growth. Growth next year is seen as just 1.2 percent, down 1.7 percent, and next year at 1.7 percent, down 1.9 percent.

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