WASHINGTON – The Federal Reserve has sharply cut its forecast for inflation next year, saying it will remain far below its 2 per cent target through 2015.
The Fed said Wednesday that it now expects inflation to fall to between 1 per cent and 1.6 per cent in 2015, down from a previous forecast in September of 1.6 per cent to 1.9 per cent. The downgrade reflects plummeting oil and gas prices. The Fed kept its 2016 inflation forecast of 1.7 per cent to 2 per cent.
Policymakers also boosted their forecasts for economic growth this year to as much as 2.4 per cent, up from a previous estimate of 2 per cent to 2.2 per cent. That reflects strong growth of 4.3 per cent from April through September, the healthiest pace in a decade.
The Fed updated its economic forecasts after a two-day policy meeting.
The Fed has made a much smaller cut in its forecast for core inflation, which excludes the volatile food and energy categories. It foresees core prices rising between 1.5 per cent and 1.8 per cent next year, down slightly from 1.6 per cent to 1.9 per cent in its September projections.
The lower inflation forecast gives the Fed room to keep its benchmark interest rate at its record-low level of nearly zero. Fed policymakers said in a statement that they “can be patient” on the timing of any rate increase. Most economists expect the Fed to start raising rates in mid-2015.
The increase in its 2014 growth forecast is the Fed’s first upgrade in 12 months, since it boosted its 2013 outlook. The Fed has steadily lowered its projections for this year since June 2013, when it forecast growth of about 3.25 per cent.