Federal Reserve officials forecast the nation’s unemployment rate will hit the central bank’s threshold for raising interest rates sometime in 2015, while projecting faster improvement in the labor market this year.
U.S. central bankers estimate the jobless rate will average 6.7 percent to 7 percent in the final quarter of 2014 and 6 percent to 6.5 percent in 2015, according to their central tendency estimates. Similarly, 13 of the 19 Federal Open Market Committee participants estimated that the first increase in the federal funds rate from its current range of zero to 0.25 percent will occur in 2015, the same as at the December meeting.
Four estimated the first tightening in 2014, up from 3 in December. Eleven estimated that the benchmark lending rate will be 1 percent or lower by the end of 2015, compared with 12 in December.
Fed Chairman Ben S. Bernanke is using communications tools such as interest-rate forecasts and economic projections to enhance the Fed’s monetary policy. U.S. central bankers dropped a date commitment for the benchmark lending rate in December, replacing it with numeric inflation and unemployment values that would prompt a change in rates.
The FOMC said in its statement today that the central bank will keep up its bond buying at a pace of $85 billion a month even as the world’s largest economy and the job market pick up. The committee left unchanged its statement that it plans to hold the target rate near zero as long as unemployment remains above 6.5 percent and inflation is projected to be no more than 2.5 percent.
“Labor market conditions have shown signs of improvement in recent months but the unemployment rate remains elevated,” the FOMC said at the conclusion of a two-day meeting in Washington. Recent data suggest “a return to moderate economic growth following a pause late last year.”
The jobless rate fell in February to a four-year low of 7.7 percent. A price gauge tied to consumer spending, a measure tracked by Fed policy makers, rose 1.2 percent in January from 12 months earlier, the smallest year-to-year gain since October 2009.
Fed officials’ central tendency estimate for the inflation rate was 1.5 percent to 2 percent in 2014 and 1.7 percent to 2 percent in 2015, measured by the personal consumption expenditures price index. Those where unchanged from their December central tendency forecasts.
The central bank has an inflation target of 2 percent. Central tendency estimates exclude the three highest and three lowest forecasts.
The 19 Fed officials forecast gross domestic product would rise 2.9 percent to 3.4 percent next year and 2.9 percent to 3.7 percent in 2015. That compares with December estimates of 3 percent to 3.5 percent for 2014 and 3 percent to 3.7 percent for 2015.