On Inflation
Inflation has eased substantially from a pick of 7% to 2.7% but it is still too high.
Inflation data received earlier this year was higher than expected though more recent monthly readings have eased somewhat.
Longer term inflation expectations appeared remained well anchored as reflected in broad ranges of surveys of households and businesses and forecasters as well as measures from financial markets.
The median projection for total PCE inflation is 2.6% this year, 2.3% next year and 2.0% in 2026.
On GDP
Economic activity has continued to expand at a solid pace, although GDP growth moderated from 3.4% in the fourth quarter of last year to 1.3% in the first quarter.
Private domestic final purchases which excludes inventorial investment, government spending and net exports and usually send a clear signal on underlying demand grew at 2.8% in the first quarter nearly as strong as in the second half of 2023.
Growth of consumer spending has slowed from last years robust pace but remains solid.
An investment in equipment and intangibles has picked up from its anemic pace last year.
Improving supply conditions have supported resilient demand and a strong performance of US economy over the past year.
In our summary of economic projections committee participants generally expect GDP growth to slow from last year’s pace with median projection of 2.1% this year and 2.0% over the next 2 years.
On Labor market
In the labor market demand and supply conditions have come into better balance.
Conditions in the labor market have returned to about where they stood on the eve of the pandemic – relatively tight, but not overheated.
FOMC participants expect labor market strain to continue, the median unemployment rate projection is 4.0% at the end of this year and 4.2% at the end of the next year.
On Rates
As labor market tightness has eased and inflation declined over past two years the risk to achive our employment and inflation goals have moved toward better balance.
The economic outlook is uncertain however and we will remain highly attentive to inflation risks.
We stated that we do not expect it would be appropriate to reduce the target range for federal funds rate until we have greater confidence that inflation is moving sustainably toward 2%. So far this year the data have not given us that greater confidence.
The most recent inflation readings have been more favorable than earlier in the year however and there has been modest further progress toward our inflation objective. We’ll need to see more good data to bolster our confidence that inflation is moving sustainably toward 2%.
If the economy evolves as expected the median participant projects that appropriate level of the funds rate would be 5.1% at the end of this year, 4.1% at the end of 2025 and 3.1% at the end of 2026.