FOMC Cuts GDP Growth Projections, Predicts Higher Unemployment Rates

On Wednesday, the Federal Open Market Committee (FOMC) released a report showing that it has revised its economic projections downwards from its previous projections made in September.

The FOMC is now projecting the unemployment rate will rise to 4.6% next year from the current rate of 3.7%, and remain at 4.6% until 2025 when it will drop slightly to 4.5%.

Additionally, the FOMC estimates that real GDP growth will be 0.5% in 2023, less than half of the previous projection for 2023 of 1.2% growth.

The report comes the same day the FOMC announced it would raise interest rates by half a percentage point, which will further blunt economic growth, in order to bring down the current 7.1 percent inflation rate to the Federal Reserve’s target of 2 percent.

In a press release, the FOMC warned that further interest rate hikes are expected and that no reductions will be made until 2024.

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run,” the statement said. “In support of these goals, the Committee decided to raise the target range for the federal funds rate to 4-1/4 to 4-1/2 percent. The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.”

“In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments,” the statement added. “In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.”