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Tuesday, May 18, 2021

The Fed’s Economic Forecasts Got Worse This Week

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Prospects of a slowing economy are growing, the Federal Reserve concluded as it lowered its economic forecasts. Still, it reiterated its belief that raising interest rates gradually would be in the long-term interest of the country.

“In light of this information, some members judged that the case for an increase in the federal funds rate had become less compelling,” the Fed said in a statement following a two-day meeting. The committee increased the federal funds rate by a quarter-point in September and indicated that it expected to keep raising it through the end of the year.

The committee said that economic activity grew at a solid pace in the third quarter, but trade tensions and higher borrowing costs are expected to restrain growth. Wage growth remains low, and prices generally continue to rise in line with the Fed’s 2 percent inflation target.

“The economic outlook remains subject to significant uncertainty,” the Fed said.

Officials projected that the economy would expand at a 2.3 percent annual rate in the fourth quarter, with growth slowing to about 2 percent in 2019 and 2020. They lowered their projections for unemployment, inflation and gross domestic product growth.

Still, they described the economy as close to full employment, with “solid” job growth expected, and they saw continuing “low” inflation and stable inflation expectations.

The central bank’s updated forecasts called for rates to stay near 2 percent at the end of this year and the first half of 2020. Many economists expect the Federal Reserve to raise interest rates only twice more this year.

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