Reaching 2% inflation to be a long schlep for the Fed: aiming for 3.6% this year, 2.6% in 2024 and 2.1% in 2025

precios inflacion

Intermoney | The same could be said of the update of the macro picture forecasts. Economic projections are not necessarily a roadmap for policy and are subject to change. In fact, they have been changing from quarter to quarter. The projections point to inflation at 3.6% this year, one tenth of a percentage point higher than forecast in December. In 2024 it will moderate (2.6%), but it will not be until 2025 that the target (2.1%) will be reached. The Fed expects the slowdown to continue and estimates GDP growth of 0.4% this year, a tenth of a percentage point lower. The labour market continues to be very resilient, they expect a cooling off with the unemployment rate at 4.5%, as compared with 3.6% in February.

The process of bringing inflation back down to 2% is a long road, more complex than central banks would like and likely to be bumpy. High prices mean facing significant difficulties with clear costs, but knowing that the costs of keeping inflation at high rates are even higher; a real ideal that the Fed never tires of conveying. That is why, despite the doubts looming over the banking sector, the Fed will not buckle under yet in its battle with prices. This idea was underpinned by a statement in which the language was changed, but not the storyline. Now the increases will not be “continuous”, but “some additional tightening” will still be necessary. After that, the Bank will remain very vigilant to inflation risks, using the rate tools to address them, while the balance sheet will serve to address the financial stability problem.

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