A recent policy meeting at the central bank aimed to keep short-term rates between 0%-0.25% for the foreseeable future. Individual member’s project these rates could remain near zero through 2023. CNBC reported that this is the first time that the committee forecasted its outlook for 2023 and that its economic forecast was changed to reflect a smaller decline in GDP and a lower unemployment rate in 2020.
On another note, officials discussed a new policy regime where the Fed will allow inflation to run somewhat above the 2% target rate before hiking rates to control inflation. Chairman Jerome Powell stated that these changes will “clarify our strong commitment over a longer time horizon,”
“With inflation running persistently below this longer run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved,” – post-meeting statement
The goal? Maintain a target range until the labor market conditions reach a level consistent with their assessment of maximum employment and inflation is on track to “moderately exceed 2% for some time”.
Each of these moves come in response to stronger economic data emerging during Q3. Most economists expect to see a sharp rebound coming out of the coronavirus pandemic.
GDP Decline
The full-year GDP decline forecast in September reported 3.7% which is much better than June’s 6.5% drop forecast. The committee lowered its 2021 outlook from 5% to 4%, and 2022 from 3.5% to 3%. 2023 growth is projected at 2.5%.
Here are the latest numbers from the Federal Reserve:
Unemployment/Inflation
Unemployment projections dropped from 9.3% to 7.6%. Keep in mind that in August, unemployment clocked in at 8.4%. Inflation projections got marked up from 0.8% in June to 1.2%. The committee doesn’t expect us to reach 2% until 2023.
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