By Michael S. Derby 
 

WASHINGTON--The Federal Reserve's latest forecasts, released Wednesday, show officials expect that they'll go slightly over their 2% inflation target in coming years.

Policymakers are also reckon in their official outlook that they'll see slightly higher growth over the next couple of years, and an even better performance for the job market performance, relative to their December forecasts.

The Fed's outlook, which is released quarterly, arrived in conjunction with the outcome of its Federal Open Market Committee meeting. At that gathering, officials met expectations and boosted their overnight target rate range to 1.50% to 1.75%, the first increase under new central bank chairman Jerome Powell.

Fed officials justified their interest rate rise on steady job market gains and their ongoing expectations that weak inflation will soon return to their 2% inflation target.

Market participants have already been upgrading their outlook due to labor market strength and the prospect the economy may grow faster than expected, spurred on by the recently passed tax cuts and increased government spending.

Fed officials expect inflation, as measured by the personal consumption expenditures price index, will rise to a 2% increase next year, which they also thought would happen in the last release. But they now see inflation going to a 2.1% gain in 2020. Meanwhile, so-called core prices, which strip out food and energy factors, are now seen at a 2.1% rise in 2019 and 2020.

However, in the longer run Fed officials still expect infaltion to hit their 2% target.

Fed officials have stressed repeatedly that their inflation target is not a ceiling but symmetric, meaning price rises above and below 2% are equally unwelcome. Some officials have said that they'd be okay for inflation to exceed the target for a short time, noting the Fed's faced a long struggle to get inflation up to desired levels for years.

In the forecasts, Fed officials moved up their growth outlook for this year to a 2.7% rise, from the 2.5% predicted in their last forecast. Officials see 2019 growth at 2.4% from the last estimate of 2.1%, while pegging long run growth at an unchanged 1.8%.

When it comes to hiring, Fed officials believe what's now a 4.1% jobless rate will ebb to 3.8% by the end of the year, versus December's 3.9% estimate. Policymakers now think the jobless rate will hit 3.6% next year, and say the long-run jobless rate stands at 4.5%, down from the December estimate of 4.6%.

The Fed's outlook shows officials expecting the labor sector to exceed what they consider full employment, which means that if traditional economic theories are correct, it should be a source of higher inflation pressures by way of rising wages.

 
   Write to Michael S. Derby at michael.derby@wsj.com 
 
 

(END) Dow Jones Newswires

March 21, 2018 14:15 ET (18:15 GMT)

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