By Michael S. Derby
WASHINGTON, Sept 16 (Reuters) – Federal Reserve officials expect one more interest rate increase this year after raising rates on Wednesday and expect to hold steady in 2027, quarterly projections released after their latest policy meeting showed.
At the same time, policymakers also marked up their near- term inflation outlook.
The forecasts were released as policymakers raised the target rate for fed funds by a quarter percentage point to 3.75-4.00%, which was widely expected. Their new forecasts sees rates coming back down in 2028 and for the federal funds rate to stand at between 3.5% and 3.75% in 2029.
In June, Fed officials in their projections had penciled in one quarter point rate rise this year and a cut of the same amount in 2027.
Wednesday’s rate hike came as policymakers have been wrestling with inflation that has remained stubbornly high. Since the June meeting the issue has only gotten more challenging as price pressures, fueled in part by surging energy costs related to the Middle East war, have risen and increased worries that inflation will not moderate to the Fed’s 2% target in a timely fashion.
Officials marked up their long-run expectation of a federal funds rate to 3.2% from the June forecast of 3.1%.
The Fed’s forecasts also showed policymakers now expecting generally higher inflation for this year and beyond.
For 2026, the median forecast for inflation as measured by the personal consumption expenditures price index stood at 3.7%, versus the June projection of 3.6%. Officials still expect the PCE price index to stand at 2.3% next, with 2028 coming in at 2.1%, from June’s forecast of 2%. Officials expect to get back to their 2% inflation target in 2029.
The Fed’s forecasts also showed mostly steady growth and employment outlooks. GDP growth this year is seen at 2.3%, up from June’s 2.2% forecast, and at 2.4% in 2027. The unemployment rate, which is currently at 4.1% as of August, is seen at 4.1% by the end of this year, staying there through 2029.
Eighteen of 19 policymakers submitted forecasts for the interest rate outlook, which strongly suggests that Fed Chairman Kevin Warsh refrained, as he did in June, from offering projections.
The Fed’s so-called dot plot, which maps out policymaker views, showed 16 of those officials expect to hike rates this year while two see rates holding steady.
The Fed’s forecasts face an uncertain future as the central bank has engaged in a formal process that is weighing changes in a broad array of fronts, including how it communicates and considers the data it uses to set monetary policy.
(Reporting by Michael S. Derby; Editing by Andrea Ricci)
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