On Wednesday, the Federal Reserve announced that it would keep interest rates steady, which was as expected. As a result, rates remain in a range of between 5.25% to 5.5%. The policy-making committee also implied one more interest rate hike going forward based on the central bank’s summary of economic projections.
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In June, the Federal Reserve had projected Fed Funds rates of 5.6% and 4.6% for 2023 and 2024, respectively. Interestingly, the updated projection now stands at 5.6% and 5.1%, respectively. This means that the central banks expect rates to remain higher for a longer period of time than previously anticipated. Moreover, its real GDP forecast for 2023 increased to 2.1%, compared to its June expectation of 1%.
Furthermore, the central bank’s board members and presidents weighed in on PCE inflation and now expect it to be 3.3% in 2023. For reference, they had forecast 3.2% in the previous report. However, Core PCE inflation projections decreased to 3.7% versus 3.9%.
It’s clear that inflation continues to remain stubbornly sticky. Nevertheless, with GDP expectations rising, it seems that the economy might avoid a recession, at least according to today’s report. In addition, it would appear that the Federal Reserve is giving the economy time to adjust to the current interest rates as they gradually work their way through.
