ATLANTA - Federal Reserve officials predicted their target interest rate would be 1 percent at the end of 2015 and 2.25 percent a year later, higher than previously forecast, as they upgraded projections for gains in the labor market.
Most Federal Open Market Committee participants reiterated their view that the Fed will refrain from raising the benchmark interest rate until 2015. The median rate among 16 Fed officials rose from December, when they estimated the rate at the end of next year at 0.75 percent, and 1.75 percent for the end of 2016.
The rate outlook is part of economic projections released today after the FOMC met in Washington, D.C. Central bankers also adjusted their unemployment forecast after a drop in the jobless rate over the past three months. The previous projections included one additional policy maker.
A majority of FOMC participants - 13 out of 16 - expect the first increase in the main interest rate in 2015. One projected the first rate increase in 2014, while two forecast an initial move in 2016.
FOMC participants predicted the unemployment rate will be 6.1 percent to 6.3 percent in the fourth quarter of 2014, and fall to 5.6 percent to 5.9 percent at the end of 2015 and 5.2 percent to 5.6 percent a year later. In December, they projected the jobless rate would be 6.3 percent to 6.6 percent late this year, 5.8 percent to 6.1 percent at the end of 2015, and 5.3 percent to 5.8 percent a year later.
Payrolls rose more than projected last month and the jobless rate was 6.7 percent, down from 7 percent in November, as the Fed tried to spur growth by purchasing Treasuries and mortgage-backed securities, pushing Fed assets to a record $4.18 trillion.
While Fed officials have used unemployment as a core labor market measure, Fed Chair Janet Yellen has said it doesn’t provide a complete picture. The jobless rate has fallen as labor force participation, the portion of the working-age population either employed or looking for a job, held at 63 percent in February, close to the lowest level since 1978.
“A decline in the unemployment rate could, for example, primarily reflect the exit from the labor force of discouraged job seekers,” Yellen said in a March 2013 speech in Washington. “That is an important reason why the committee will consider a broad range of labor-market indicators.”
Central bankers forecast an expansion of 2.8 percent to 3 percent this year, according to their central tendency estimates, which eliminate the three highest and three lowest projections. Fed governors and the 12 reserve bank presidents estimated the economy would grow 3 percent to 3.2 percent in 2015, and 2.5 percent to 3 percent in 2016.
Fed officials project the personal consumption expenditures price index to rise 1.5 percent to 1.6 percent this year; 1.5 percent to 2 percent in 2015 and 1.7 percent to 2 percent in 2016.
Inflation measured by the PCE index rose 1.2 percent for the 12-month period ended in January, below the central bank’s 2 percent target.