The most important parts of the new proections are firstly, median fed funds rate projection is unchanged at 3.4% in 2021. That is, Fed expects to stop after three hikes in 2019 and one more in 2020. However, secondly, the longer run federal funds rate was raised from 2.9% to 3.0%. That is, the neutral rate was somewhat lifted.
All in all, Fed’s new projections clearly show that the impact of fiscal stimulus of tax cuts and others would fade rather quickly, with notable fall in GDP growth in 2021 and rise in unemployment rate too. With core inflation holding at 2.1% in 2021, there is no need for further rate hike.
GDP projections for 2018 and 2019 are raised to 3.1% and 2.5% respectively. For 2020, GDP projection was kept unchanged at 2.0%. For 2021, it’s forecast to slow further to 1.8%.
Unemployment rate projection for 2018 was raised from 3.6% to 3.7%. For 2019 and 2020, it’s kept unchanged at 3.5%. And unemployment rate is expected rise back to 3.7% in 2021.
Core PCE projection was unchanged through out, at 2.0% in 2018, 2.1% in 2019, 2020 and 2021.
