Federal Reserve officials this week came as close as they are probably ever going to get to admitting that the aggressive interest rate reduction they enacted weeks before the 2024 election was, the Fed’s monetary policy unit, cut its benchmark interest rate by one-quarter of a point, reducing the federal funds rate to a range of 4.25 percent to 4.50 percent.
The projections also show that Fed officials expect core inflation to be higher next year than they were forecasting earlier. The median projection rose from 2.2 percent to 2.6 percent. While that’s not a projection of a rise in core inflation from where the Fed thinks we’ll end up this year, it is a sign thatover the coming 12 months. In other words, the Fed is admitting that progress on bringing inflation down has stalled.
Note that the Fed does not think we’ll get much more real growth next year. Officials raised the median 2025 projection for real GDP growth from 2.0 to 2.1 percent. So, we haven’t traded off more real growth for more inflation. We’re just gettingNominal growth is expected to be higher. Putting together the expected real growth of 2.1 percent and the expected inflation rate of 2.5 percent produces a nominal growth estimate of 4.6 percent, a significant increase from the 4.
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