Fed keeps federal funds rate unchanged at 5.25-5.50% as widely expected, by unanimous vote. Tightening bias is maintained as “The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals”.

In the new dot plot, 12 of 19 policymakers penciled in one more 25bps rate hike this year to 5.50-5.75%. By

In the new median projections,

• 2023 GDP growth is revised up to 2.1% (from 1.0%).
• 2024 GDP growth is revised up to 1.5% (from 1.1%).
• 2025 GDP growth is unchanged at 1.8%.

• 2023 unemployment rate is revised down to 3.8% (from 4.1%).
• 2024 unemployment rate is revised down to 4.1% (from 4.4%).
• 2025 unemployment rate is revised down to 4.1% (from 4.5%).

• 2023 PCE inflation is revised up to 2.2% (from 3.2%).
• 2024 PCE inflation is unchanged at 2.5%.
• 2025 PCE inflation is revised up to 2.2% (from 2.1%).

• 2023 core PCE is revised down to 3.7% (from 3.9%).
• 2024 core PCE is unchanged at 2.6%.
• 2025 PCE is revised up to 2.3% (from 2.2%).

• 2023 federal funds rate unchanged at 5.6%.
• 2024 federal funds rate raised to 5.1% (from 4.6%).
• 2025 federal funds rate raised to 3.9% (from 3.4%).

Full FOMC statement here.

Full Summary of Economic Projections here.

Chicago Fed President Charles Evans said the new average inflation targeting was “consistent with the type of outcome-based forward guidance that I advocated and that the Committee used to speed the recovery after the Great Financial Crisis.”

“I expect that articulating outcome-based forward guidance for the rate path and asset purchases could be beneficial in the not-too-distant future” he added. He’d be “comfortable” with inflation going up to 2.5% “as long as we were trying to average off very low inflation rates”.

Evans also said, “even with steady progress in controlling the virus and additional fiscal support, I expect it will be some time before the economy recovers from the hit it took”. He expects the unemployment rate would still be somewhere in the range of 5% to 5.5% at the end of 2022.

Separately, Atlanta Fed President Raphael Bostic said, “as long as we see the trajectory moving in ways that suggest that we are not spiraling too far away from our target, I’m comfortable just letting the economy run and letting it play out”.

Fed Vice Chair Richard Clarida said in a speech yesterday that before the current downturn, long-term inflation expectations were already “at the low end” of the range that’s consistent with Fed’s objective. Give the “likely depth of this downturn”, inflation expectations are “at risk of falling below” that range.

Hence, “I will place a high priority on advocating policies that will be directed at achieving not only maximum employment, but also well-anchored inflation expectations consistent with our 2 percent objective,” he added. “Depending on the course of the virus and the course of the economy, more support from both fiscal and monetary policy may be called for,” he added.