Federal Reserve Chairman Jerome Powell answers questions during a press conference following a two-day closed session of the Federal Open Market Committee on interest rate policy at the Federal Reserve Board in Washington, Nov. 1, 2023.
Kevin Lamarque | Reuters
The US Federal Reserve (Fed) lowered its inflation outlook on Wednesday, saying it now expects inflation to fall to 2.4% in 2024.
The central bank also predicted that the core personal consumption expenditure price index would decline to 2.2% by 2025, eventually reaching the target of 2% in 2026. The index rose 3.5% in October compared to the same month last year.
These new forecasts suggest that inflation conditions will be more moderate over the next two years than in the last update in September. The Fed had expected core PCE to reach 2.6% in 2024 and 2.3% in 2025.
The Federal Open Market Committee said in a post-meeting statement Wednesday that inflation has “moderated over the past year,” although it maintained the term “increasing” in prices.
While the public is paying more attention to the Consumer Price Index as a measure of inflation, the Fed is prioritizing the core PCE measure. The former measure focuses primarily on the price of goods and services, while the latter focuses on how much people actually spend, adjusting consumer behavior when prices change. In November, the core CPI was 4% and the composite index was 3.1%.
Committee members also revised upward the outlook for gross domestic product. They now expect GDP to grow at an annual rate of 2.6% in 2023, an increase of 0.5 percentage points since their last update in September.
Officials expect the GDP growth rate in 2024 to be 1.4%, almost unchanged from the previous forecast. The forecast for the unemployment rate remained largely unchanged at 3.8% in 2023, rising to 4.1% in subsequent years.
dot plot
The Fed will cut interest rates to a median of 4.6% by the end of 2024, according to projections released by the Fed, which would be a three-quarter percentage point cut from its current target range of 5.25% to 5.5%.
Each member of the FOMC plots a “dot plot” of their expectations for interest rates over the next several years.
Here are the Fed’s latest goals:
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