Federal Reserve officials see economic growth and inflation rising higher in 2021 than they expected earlier this year, according to economic projections released Wednesday.
Members of the Fed board and presidents of reserve banks, which together make up the Federal Open Market Committee (FOMC), largely see the pace of the rebound from the coronavirus pandemic accelerating deeper into the year.
The median estimate of 2021 gross domestic product growth from FOMC members rose to 7 percent from a projection of 6.5 percent in March. The median estimate of annual inflation also rose to 3.4 percent from 2.4 percent in March, while the median estimate of unemployment remained unchanged at 4.5 percent.
“As the reopening continues, shifts in demand can be large and rapid, and bottlenecks, hiring difficulties and other constraints could continue to limit how quickly supply can adjust, raising the possibility that inflation could turn out to be higher and more persistent than we expect,” Fed Chairman Jerome Powell said in remarks after the announcement.
“If we saw signs that the path of inflation or longer-term inflation expectations were moving materially and persistently beyond levels consistent with our goal, we’d be prepared to adjust the stance of monetary policy.”
The Fed stressed that these projections are not the official forecast of the central bank, but rather a window into the consensus views of FOMC members. Even so, the median estimates are a window into growing optimism among Fed members in the economy despite deepening concerns among inflation hawks.
While inflation was widely expected to rise as the retreat of the pandemic fueled more demand for goods and services, the faster-than-projected rate of price increases has prompted skepticism of the Fed’s approach to inflation. Powell and Fed officials have expressed confidence that inflation would ease as the U.S. economy hits a steadier pace.
The FOMC also announced that it would keep its baseline interest rate range at zero to 0.25 percent and continue to purchase a combined $120 billion Treasury and mortgage bonds each month to keep downward pressure on borrowing costs.
No Fed official expected the bank to hike interest rates until 2022 at the earliest, according to projections released Wednesday, but anticipated a quicker return to higher levels than they did in March.
Five of the 18 FOMC members expected at least one hike in 2021, and two members expected two hikes. Eleven FOMC members expected rates to rise at least three times in between this year and 2023.
Updated at 2:41