Fed Still Eyes One More 2017 Rate Rise, Trims Inflation View

By Michael S. Derby Features Dow Jones Newswires

The Federal Reserve's latest update to its economic outlook shows officials are still penciling in one more rate rise this year after Wednesday's increase, amid forecasts that showed a weaker inflation projection and an even rosier the job market outlook.

Continue Reading Below

The forecasts were released in conjunction with the outcome of the interest-rate setting Federal Open Market Committee meeting, updating views last put down in March.

Fed officials boosted short-term interest rates for the second time this year, lifting their short-term target rate range to 1% and 1.25%, as they were expected to do. They also laid out a plan to reduce their $4.5 trillion balance sheet later this year.

The Fed's so-called "dot plot," which compiles the interest-rate projections of all sitting Fed officials, showed only very modest changes in how officials are looking at the path of interest rates.

The median projection for the Fed's interest rate target remained at 1.4% for 2017, while 2018's view also held steady at 2.1%. Officials' median long-run interest rate expectations--essentially where policymakers see their rate rise campaign ending at--remained at 3% overnight target rate.

On the economic front, the Fed now expects inflation to be lower this year, but to rise to the official target of a 2% increase by 2018. Officials trimmed their median estimate of the expected rise for price pressures this year to a 1.6% gain, from 1.9% in March.

Continue Reading Below

On the jobs front, officials appeared to react to the latest data showing a drop in the jobless rate in May to 4.3% by lowering their estimate of 2017 unemployment to that same level, from March's estimate of 4.5%. For 2018, officials' median forecast is for a 4.2% jobless rate.

On the growth front, officials' median projection for 2017 growth now stands at 2.2%, from March's 2.1% estimate.

Changes in the central bank's forecasts had been widely expected given recent economic data that have showed a weakening inflation trend and surprising strength in the labor market.

A notable wildcard for the Fed's latest forecasts were personal shifts among the Fed leadership. April saw the exits of Richmond Fed leader Jeffrey Lacker and Fed Governor Daniel Tarullo. The former was an advocate for aggressive rate rises while the latter shared no such appetite.

Their absence may have affected the Fed's interest rate outlook, if only at the margins.

The June forecasts also see the entrance of a new voice with the Atlanta Fed's Raphael Bostic, who took office this month. Little is known about his economic and monetary policy views, but his bank said he would be providing his outlook to the June release.

Write to Michael S. Derby at michael.derby@wsj.com

(END) Dow Jones Newswires

June 14, 2017 14:15 ET (18:15 GMT)