US Fed Raises Unemployment, Inflation Estimates For 2021

The US Federal Reserve increased its unemployment and inflation expectations for 2021, according to projections released Wednesday after it kept its benchmark interest rate unchanged at the end of a two-day meeting.

The central bank expects the unemployment rate to average 4.8% this year, from the previous estimate of 4.5% made in June.

Unemployment is forecast to average 3.8% in 2022 and 3.5% in 2023, unchanged from earlier estimates.

It raised personal consumption expenditures (PCE) inflation forecast for this year to 4.2%, from 3.4%; and to 2.2%, from 2.1% for 2022, while it remained unchanged at 2.2% for 2023.

Core PCE inflation is now anticipated at 3.7% this year, up from the previous estimate of 3%.

But the Fed lowered the US economic growth forecast significantly to 5.9%, from a 7% estimate in June.

The American economy, however, is expected to expand 3.8% and 2.5% in 2022 and 2023, respectively — both up from previous estimates of 3.3% and 2.4%.

First rate hike next year

The central bank indicated its increase in interest rates, of 25 basis points, may come next year.

There could be four more rate hikes in 2023 of 0.25% each, which are up from an estimated two hikes made in June.

Although the Fed kept repeating it would not raise its benchmark interest rate until full employment is achieved, it may be forced into an increase to tame rising inflation.