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Fed lowers inflation forecast for 2024, seeing core PCE falling to 2.4%

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Federal Reserve Board Chairman Jerome Powell answers a question during a press conference following a closed two-day meeting of the Federal Open Market Committee on interest rate policy at the Federal Reserve in Washington, November 1, 2023.
Kevin Lamarque | Reuters

The Federal Reserve dialed back its inflation projections on Wednesday, seeing its favorite gauge falling to 2.4% in 2024.

The central bank also predicted that the core personal consumption expenditures price index will decline to 2.2% by 2025 and finally reach its 2% target in 2026. The gauge rose 3.5% in October on a year-over-year basis.

These new forecasts suggest a softer inflation picture in the next two years than that from the last update in September. The Fed had foreseen the core PCE hitting 2.6% in 2024 and 2.3% in 2025.

In the post-meeting statement released Wednesday, the Federal Open Market Committee said inflation has “eased over the past year” while maintaining its description of prices as “elevated.” 

While the public more closely watches the consumer price index as an inflation measure, the Fed prefers the core PCE reading. The former measure primarily looks at what goods and services cost, while the latter focuses on what people actually spend, adjusting for consumer behavior when prices fluctuate. Core CPI was at 4% in November while headline was at 3.1%.

Committee members also upgraded their forecast for gross domestic product. They now expect GDP to grow at a 2.6% annualized pace in 2023, a half percentage point increase from the last update in September.

Officials see GDP at 1.4% in 2024, roughly unchanged from the previous outlook. Projections for the unemployment rate were largely unchanged, at 3.8% in 2023 and rising to 4.1% in subsequent years.  

Dot plot

Projections released by the Fed showed the central bank would slash rates to a median 4.6% by the end of 2024, which would be three quarter-point reductions from the current targeted range between 5.25%-5.5%. 

The individual members of the FOMC indicate their expectations for rates in the following years in the “dot plot.”

Here are the Fed’s latest targets:

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