NOTABLE SHIFT
For an institution that has been reluctant to declare victory over inflation that spiked last year to a 40-year high, the updated projections and new statement mark a notable shift in tone and outlook.
Headline personal consumption expenditures inflation is seen ending 2023 at 2.8 per cent and falling further to 2.4 per cent by the end of next year, within striking distance of the Fed’s 2 per cent target.
That comes at little comparative cost in terms of higher joblessness, with the unemployment rate seen rising from the current 3.7 to 4.1 per cent, the same rate projected in September, while economic growth is seen slowing from an estimated 2.6 per cent this year to 1.4 per cent over 2024.
While officials remain free to raise the Fed’s benchmark overnight interest rate again in coming months if inflation resurges, that seems increasingly unlikely given the recent performance of inflation that has edged steadily towards the central bank’s target.
The economic projections, as a whole, cling closely to the “soft landing” scenario that has become the base case for US central bankers hoping that inflation continues to slow without a recession and sharp rise in unemployment.
Investors ahead of this week’s meeting bet that the Fed would cut its policy rate by a full percentage point by the end of next year, putting the central bank’s new projections nearly in line with the views of financial markets.
After raising the policy rate by 5.25 percentage points since March of 2022 in one of the swiftest Fed reactions to rising price pressures, the central bank has now kept the policy rate on hold since July as inflation edges closer to its target.
Source: CNA
