Federal Reserve officials raised their expectations for economic growth, labor market recovery, and inflation this year, data released Wednesday showed.
The Fed released the economic projections of Federal Reserve Board members and bank presidents at the conclusion of its two-day Federal Open Market Committee meeting. Those projections show much higher GDP growth this year, slightly higher inflation, and lower unemployment than they did in December, the last time the Fed released projections.
“Following a moderation in the pace of the recovery, indicators of economic activity and employment have turned up recently, although the sectors most adversely affected by the pandemic remain weak,” the Fed said in a statement.
The median projection for GDP growth in 2021 is now 6.5 percent, up from 4.2 percent in December. That is higher than the upper end of the range of projections at the December meeting, when the most bullish projection was for 5.5 percent growth. The high end of the projections is now 7.3 and the low end is 5.0.
Next year, the median projection is for 3.3 percent growth, up slightly from 3.2 percent. Some of this growth, however, is expected to come by borrowing from the future. The 2023 projection ticked down from 2.4 percent to 2.2 percent. The Fed thinks the longer-run growth rate will be 1.8 percent.
The unemployment rate is expected to fall to 4.5 percent by the end of the year, down from 5.0 percent in December. Currently, the unemployment rate sits at 6.2 percent. The Fed sees it falling to 3.9 percent the following year and 3.5 percent in 2023. In the long run, the median expectation is for 4.0 percent, down from 4.1 percent in the December meeting.
Fed officials also expect inflation to get hotter. The median forecast moved up to 2.4 percent for this year, up from 1.8 percent in December. Core inflation, which excludes food and energy, moved up to 2.2 percent from 1.8 percent. In January, the personal consumption price index—the Fed’s favored measure of inflation—rose just 1.5 percent.
Despite the higher expectations for growth and inflation, most Fed officials do not expect to raise rates until after 2023. The median projection for rates remained unchanged.
A few more Fed officials, however, do see rates going higher. In December, just one official forecast a rate rise next year. Now three officials see at least one hike and one sees two hikes next year. Seven Fed officials see higher rates in 2023, including two who expect the target to rise above one percent, up from just five in December.