Most Federal Reserve policy makers expect the first increase in the nation’s benchmark lending rate to occur in 2015.
The federal funds rate target will be 2 percent at the end of 2016, according to the median of estimates by five governors on the Fed’s board and 12 reserve bank presidents. That rate compares with their median estimate of 4 percent for where the rate should be at a time of full employment and stable prices.
The outlook is part of the Fed’s forecasts released today after the Federal Open Market Committee concluded a two-day meeting in Washington. Twelve of 17 FOMC participants see the first rate rise occurring in 2015, and two see it happening in 2016, the forecasts showed. Three participants predicted the first increase in 2014.
In June, 14 FOMC participants predicted the first rate increase in 2015 and one saw it coming in 2016. The June meeting had two more participants than today’s meeting had.
Today was the first time the FOMC released officials’ 2016 outlook for the funds rate and economic indicators.
The FOMC participants estimated the economy would expand at a 2.5 percent to 3.3 percent rate in 2016, driving unemployment down to 5.4 percent to 5.9 percent with inflation at 1.7 percent to 2 percent, according to their central tendency estimates. The unemployment rate was in line with Fed officials’ longer-run estimate for full employment of 5.2 percent to 5.8 percent.
Recent government reports have highlighted uneven progress in the economic recovery, and policy makers today again lowered their estimates for expansion for this year and the next.
Fed officials’ forecast U.S. gross domestic product to increase 2 percent to 2.3 percent this year, 2.9 percent to 3.1 percent in 2014, and 3 percent to 3.5 percent in 2015, according to the central tendency forecasts.
In June, they had estimated 2.3 percent to 2.6 percent growth in 2013, 3 percent to 3.5 percent expansion in 2014 and 2.9 percent to 3.6 percent growth in 2015. The central tendency forecasts exclude the three highest and three lowest projections.
Recent declines in the unemployment rate have also caught U.S. central bankers by surprise, with workers continuing to leave the labor force while job growth remains subdued. Payrolls increased less than estimated in August and joblessness fell to 7.3 percent, Labor Department figures showed Sept. 6.
Policy makers’ estimates for the jobless rate centered at 7.1 percent to 7.3 percent for this year, 6.4 percent to 6.8 percent for 2014 and 5.9 percent to 6.2 percent for the average of the final three months in 2015.
In June, those estimates were for 7.2 percent to 7.3 percent unemployment this year, 6.5 percent to 6.8 percent next year, and 5.8 percent to 6.2 percent for 2015.
The Fed is also struggling to bring inflation back closer to their 2 percent goal after a slowdown in price gains earlier this year. Prices as measured by the personal consumption expenditures index rose 1.4 percent in July from a year earlier.
Officials expected 1.1 percent to 1.2 percent inflation for this year, 1.3 percent to 1.8 percent for 2014 and 1.6 percent to 2 percent for 2015, the central tendency estimates showed.
In June, they had anticipated 0.8 percent to 1.2 percent inflation for 2013, 1.4 percent to 2 percent inflation for 2014 and 1.6 percent to 2 percent inflation for 2015.
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