Wednesday, December 13, was declared a two-day meeting of the Federal open market Committee of the USA (FOMC). The regulators took the decision to raise the Federal funds rate by 25 basis points to 1.25 – 1.50%, noting continuing improvements in the labour market and a moderate expansion of economic activity.
Against the decision of the Committee voted Charles Evans and Neil Kashkari who would prefer to keep the old target range for the Federal funds rate.
After a meeting of the Committee was published the updated forecasts of the fed members at the rate and prospects of the American economy. Current projections, more than half of the fed members suggest that the fed funds rate in 2018 will be increased three times.
At the moment, the fed predicts that by the end of 2017 the rate will be 1.4% (forecast unchanged) and by the end of 2018 will reach 2.1% (forecast unchanged). Also the current fed’s forecast assumes that the rate will increase to 2.7% in 2019 (forecast unchanged) and will rise to 3.1% in 2020 (forecast in September: 2.9%) and will remain at 2.8% in the long term (forecast unchanged).
In addition, the fed improved the forecasts, the pace of US GDP growth and unemployment rate, and raised its forecast for head of inflation for 2017.
At the moment the median forecast of FOMC members suggests that this year the US GDP will grow by 2.5% (forecast in September: +2.4%), in 2018 – 2.5% (forecast in September: +2.1%), 2019 – 2.1% (forecast in September: +2.0%), in 2020 – by 2.0% (forecast in September: +1.8%). In the long term is expected to average annual GDP growth of 1.8% (forecast unchanged).
The median forecast for the unemployment rate in the US in 2017 amounted to 4.1% (the September forecast: 4.3%), 2018 – 3.9% (September’s forecast: 4.1%), 2019 – 3.9% (September’s forecast: 4.1%), 2020 is 4.0% (September’s forecast: 4.2%), long-term – 4.6% (forecast unchanged).
The median forecast for head of inflation (calculated on the basis of the PCE index) for 2017 increased to 1.7% from September’s 1.6% and left unchanged for the remaining reporting periods: for the year 2018 – at the level of 1.9% in 2019 – 2020 and the long term – at the level of 2.0%.
The median forecast of core inflation (calculated on the basis of the index Core PCE) unchanged: for 2017 – at the level of 1.5%, in 2018 – at the level of 1.9% in 2019 and 2020 – at the level of 2.0%.