Fed downgrades its outlook for US economy
The US Federal Reserve knows how to be realistic. The regulator of the world's leading economy is always open about possible difficulties.
Although the Fed is the US financial regulator, it also has a large influence on most economies. That is why their statements should be taken seriously. The Fed has sharply worsened its outlook for US GDP growth in 2022. It predicted rising unemployment and inflation in the country.
According to a press release issued by the regulator, GDP is now estimated to increase by 1.7% in 2022, down from the 2.8% estimate released in March. The inflation projection rose to 5.2% this year from 4.3%. The Fed official also expects unemployment to rise to 3.7%, up from its 3.5% projection in March. The US central bank now sees the US economy growing 1.7% next year. Estimates are down from March's GDP forecast of 2.2%. The unemployment rate is expected to tick higher to 3.9% in 2023, up from the previous estimate of 3.5%. Inflation will remain elevated, rising 2.7% in 2023 from the previous forecast of 2.6%. Core inflation, which excludes food and energy costs, is indicated at 4.3%, up just 0.2 percentage points from the previous outlook. For 2023, the forecast was raised from 2.6% to 2.7%.
Notably, the Federal Reserve raised its benchmark interest rates to a range of 1.5-1.75% per annum in mid-June. This is the third consecutive rate increase. The decision to hike it by 75 basis points was the biggest increase since November 1994. However, the Open Market Committee considers that ongoing increases in the target range would be appropriate.