The Federal Reserve raised its expectations for economic growth on Wednesday, but signaled that interest rate hikes are not expected for the next two years.
The so-called dot-plot projections barely moved, and most members still expect to keep rates close to zero through 2023.
Four of the 18 members of the Federal Open Market Committee were looking for a rate hike at some point in 2022, compared to just one at the December meeting. For the year 2023, seven members see a rate increase compared to five in the December forecast. As the graph shows, a strong majority does not forecast any increases until the “longer run”.
The members of the FOMC forecast quarterly where interest rates will rise in the short, medium and long term. These projections are visually represented in the following graphs called the scatter plot.
Here are the Fed’s latest targets, released in Wednesday’s statement:
This is what the Fed’s forecast looked like in December 2020:
The Federal Reserve has significantly increased its economic expectations for 2021, according to the central bank’s summary of economic forecasts released on Wednesday.
The central bank now expects real gross domestic product to grow 6.5% in 2021, compared to the forecast of 4.2% from the December meeting. The Fed also raised its forecast for real GDP in 2022 from previously expected 3.2% to 3.3%.
Source: Federal Reserve
The Fed estimates that the unemployment rate will drop to 4.5% in 2021, down from the previous estimate of 5%. The FOMC expects the unemployment rate to fall to 3.9% and 3.5% in 2022 and 2023, respectively.
The central bank now sees inflation at 2.4% this year, up from its previous estimate of 1.8%. The Fed has also slightly raised its PCE inflation estimates for 2022 and 2023.
Core PCE inflation is projected to be 2.2% in 2021, compared to the December forecast of 1.8%. The core PCE for 2022 is now expected to be 2.0% and 2.1% for 2023.