The Federal Reserve’s recent projections signal a shift in its views on the economy, indicating that inflation may turn up again and potentially paving the way for a recession. The median forecast for Personal Consumption Expenditures (PCE) inflation has increased to 2.4% in 2024, 2.5% in 2025, and remains unchanged at 2.0% in 2026 and 2027. This represents a significant increase from the September projections, which predicted 2.3% for 2024.
The central tendency of PCE inflation has also shifted, with the range expanding to 2.4-2.5% in 2024, indicating that Fed officials are becoming more concerned about inflation. Core PCE inflation, which excludes energy and food prices, shows a similar trend, with median projections increasing to 2.8% in 2024.
The Federal Open Market Committee’s (FOMC) decision to reduce the federal funds rate by 25 basis points was expected, but the accompanying projections suggest that Fed officials are more cautious about the economy’s trajectory. The revised projections predict a federal funds rate of 4.4% in 2024, up from the September projection of 4.4%.
This increase in interest rates will have significant implications for consumers and businesses, with higher interest rates leading to more expensive credit, increased borrowing costs, and potentially slower economic growth. As the Fed’s projections suggest, the economy may be heading towards a recession, which would have far-reaching consequences for the global economy.
The Fed’s shift in views on inflation and interest rates highlights the complexity of the economic landscape and the need for policymakers to remain vigilant in addressing emerging challenges.
Source: https://www.forbes.com/sites/eriksherman/2024/12/21/the-federal-reserve-admits-they-think-inflation-is-about-to-go-up