By Michael S. Derby
WASHINGTON (Reuters) - U.S. Federal Reserve officials penciled in additional rate rises for this year and said they foresee inflation pressures continuing to ease over the next few years, in updated forecasts released on Wednesday.
The projections, released quarterly, came as part of a Federal Open Market Committee meeting that saw policymakers hold their interest rate target range steady at between 5% and 5.25%, bypassing an increase for the first time since they kicked off their aggressive rate rise campaign in March 2022.
Officials now expect the fed funds rate to top out at 5.6% this year, implying two more 25 basis point increases in 2023, up from the 5.1% they projected in the last set of forecasts released in March.
Officials see their target rate going down in 2024, sliding to 4.6% versus the 4.3% forecast in March, and to 3.4% in 2025, compared to the 3.1% in the March forecasts.
Fed officials maintained their long-run projection of the federal funds rate target at 2.5%, where it has resided almost without change since 2019.
In their forecasts, policymakers were more upbeat about the economic outlook this year and expect the job market to endure smaller job losses compared to the March outlook, while inflation is seen on a similar path relative to three months ago.
Officials said the personal consumption expenditures price index, their preferred price pressure measure, should come in at 3.2% this year, compared to their 3.3% March forecast. In 2024 inflation is seen at the same level as in March at 2.5%, with price pressures ebbing to 2.1% in 2025. That year's forecast also matched the March projection.
The core PCE price index, stripped of food and energy costs, is seen at 3.9% this year, from the 3.6% forecast in March.
On the hiring front, Fed officials believe the jobless rate, which last stood at 3.7% in May, will move to 4.1% this year and to 4.5% in 2024, an outlook that was slightly better than March's. Officials’ long-run unemployment projection held steady at 4%.
The forecasts showed officials expect the nation’s gross domestic product to grow 1% this year, from the 0.4% forecast in March, and to grow 1.1% next year, compared to the last forecast of 1.2%.
Fed officials have long noted that their quarterly forecasts are not an official projection of the central bank but merely capture individual policymakers' expectations. But the forecasts nevertheless are closely watched by Wall Street as a guide for how monetary policy will react if the economy performs as Fed officials expect.