“We made less progress than expected on inflation,” Chair Jerome Powell said at his post-meeting press conference. “I can’t tell you confidently that we won’t move up our estimate of the peak [interest] rate again.”
The news comes even amid rising hopes that inflation, which has gripped the U.S. since the economy began to emerge from the pandemic, is beginning to subside. The government said this week that price growth slowed again in November, but the central bank is showing no sign of halting its almost year-long campaign to drive up borrowing costs to slow economic growth and spending.
Members of the Fed’s rate-setting committee said they expect the so-called personal consumption expenditure index — the measure of inflation they watch most closely — to rise 5.6 percent this year, still nearly three times more than their 2 percent target. But they now expect to close out 2023 with PCE still a touch above 3 percent. That’s compared to last quarter, when they projected inflation would stand at 2.8 percent at the end of next year.
Although the central bank doesn’t outright project a recession — policymakers see near-zero growth for this year and next — a downturn is strongly implied by the rest of their estimates. In particular, officials see the unemployment rate rising to 4.6 percent next year.
Powell has said he’s closely watching the upward pressure that the remarkably strong labor market is putting on wages, which he says could prevent inflation from falling back to 2 percent.
U.S. employees created a robust 263,000 jobs in November, beating analysts’ expectations yet again, while the unemployment rate stayed at 3.7 percent. That’s helping drive economic growth even in the face of the central bank’s efforts to slow things down.
President Joe Biden, who has rejected the idea that a recession next year is inevitable, hailed the latest Consumer Price Index report released this week, noting that it’s “the fifth month in a row where annual inflation has fallen in the United States.
“Make no mistake — prices are still too high,” he said. “But things are getting better, headed in the right direction.”