US Federal Reserve releases economic projections, ‘dot plot’
The US Federal Reserve released on Wednesday its latest economic projections following the Federal Open Market Committee (FOMC) meeting held on September 17–18, 2024.
The Summary of Economic Projections, also referred to as the “dot plot,” reveals updated forecasts on real GDP growth, unemployment, inflation, and the federal funds rate, offering insight into the trajectory of the US economy for each year from 2024 to 2027 and over the longer run.
Real GDP
The Fed expects the US economy to grow steadily, with real GDP projected to increase by 2.0 per cent in 2024, maintaining this rate through 2027. This estimate remains largely unchanged from the previous June 2024 forecast, indicating a stable economic outlook. However, the longer-run GDP growth is expected to slow slightly to 1.8 per cent, reflecting a more moderate pace over time.
Unemployment
Unemployment is forecasted to edge upward, reaching 4.4 per cent by the end of 2024 before gradually declining to 4.2 per cent by 2027. This represents a slight increase from earlier projections, with the central tendency suggesting some continued slack in the labour market.
Inflation
The Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, is expected to stabilise. The PCE inflation is forecast to reach 2.3 per cent in 2024 before falling back to the Fed’s target of 2.0 per cent by 2026. Core PCE inflation, excluding food and energy prices, is also expected to trend downward, from 2.6 per cent in 2024 to 2.0 per cent by 2026. These projections signal the Fed’s confidence in containing inflation pressures following recent rate hikes.
Monetary Policy
Regarding monetary policy, the Fed officials project the federal funds rate to fall to 4.34 per cent by the end of 2024, down from its current levels, and further decline to 2.88 per cent by 2026. This suggests that the Fed anticipates easing its tightening cycle as inflation comes under control, though uncertainty remains around the exact path of rate cuts.
The report reflects cautious optimism but acknowledges the risks posed by potential economic shocks. The Fed has emphasised that its projections are based on appropriate monetary policy assumptions and may be adjusted in response to new developments.
The next FOMC meeting will provide further updates, with the Federal Reserve continuing to balance its dual mandate of promoting maximum employment and price stability.
Attribution: The US Federal Reserve
