Federal Reserve officials significantly upgraded their view of the economy this week even as they projected interests rates would stay near zero for years to come.
“Economic activity and employment have picked up in recent months but remain well below their levels at the beginning of the year,” the Fed’s monetary policy setting Federal Open Market Committee said in the announcement issued at the conclusion of its two day meeting.
That is somewhat of an understatement given the size and scope of the changes in the Fed’s economic projections for the near future.
The median Fed official projection for Gross Domestic Product in 2020 went from a 6.5 percent contraction at the June FOMC meeting to a 3.7 percent contraction. The unemployment rate is seen as falling to 7.6 percent, down from the June projection of 9.3 percent.
The growth rate for next year came down from 5 percent to four percent but the unemployment projection improved from 6.5 to 5.5.
The Fed also is convinced that it will succeed in raising inflation. In the FOMC statement, the central bank said it would “aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time.” The projections show that the estimate for 2020 inflation went from 0.8 percent to 1.2 percent. Core inflation, which strips out fuel and food, is now seen as coming in at 1.5 percent, much higher than the 1 percent forecast in the June meeting.