Fed Officials Eye Slight Overshoot In Inflation Target
March 21 2018 - 2:30PM
Dow Jones News
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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