The Federal Reserve's decision to reduce its benchmark interest rate by half a percentage point has been overshadowed by the release of updated projections showing a significant increase in the median forecast for the fed funds rate over the longer term.
The Federal Reserve ’s decision to reduce its benchmark federal funds rate by a half percentage point has overshadowed thereleased last week alongside the Fed’s interest rate cut showed that the median forecast for the fed funds rate over the longer-term rose to 2.9 percent. This has risen three times this year, once for each of the releases of the projections. The projection is now higher than it has been since September 2018.
To understand what this means, it is important to remember that the Fed treats the two percent inflation target as. The fed funds rate and the unemployment rate get adjusted around what the Fed thinks will be required for the two percent inflation target. The median expectation for longer-run rate of unemployment has been as high as five percent and as low as four percent. It is currently at 4.2 percent.
So what we’ve seen this year has been a steady climb in the projected fed funds rate and a smaller increase in the expected unemployment rate. Which is to say,That’s bad news for American consumers, and a subtle criticism of the Biden-Harris economy.
Federal Reserve Interest Rate Inflation Economic Projections Monetary Policy
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