Fed Lowers Its Long-run Interest Rate Forecast

By Steve GoldsteinMarketWatch Pulse

The Federal Reserve on Thursday lowered its interest-rate forecast for the longer run, a crucial statement that says the U.S. economy is getting less capable of withstanding monetary policy tightening. The median of the Fed's long-term forecast was lowered to 3.5% from 3.8% in June. The Fed is forecasting a federal funds rate of 0.4% for 2015, 1.4% in 2016, 2.6% in 2017 and 3.4% in 2018, which all are lower than the central bank saw in June. The central bank projected less inflation, trimming its forecast for PCE inflation this year, 2016 and 2017, and not seeing inflation reach the 2% target until 2018. At the same time, the Fed got more optimistic on the unemployment rate, lowering its projections for 2015, 2016, 2017 and the longer term.

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