Federal Reserve officials projected Wednesday that inflation will run at 5.3% this year, a significant increase from their last such projection.
Inflation projections are a moving target for the Fed, which predicted in March that prices would rise just 2.4% in 2021. Each time the central bank has updated its forecasts this year, that number has crept higher.
Members of the Fed's Federal Open Markets Committee said in projections released Wednesday that inflation will drop back down to 2.6% next year, 2.3% in 2023, 2.1% in 2024, and settle at about 2% in the long run. The central bank also projected that it would end up hiking interest rates three times next year.
Projections for the country’s gross domestic product were also released on Wednesday. Fed members revised down their GDP predictions from 5.9% in 2021 to 5.5% and changed their growth forecast from 3.8% to 4% for next year.
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"Progress on vaccinations and an easing of supply constraints are expected to support continued gains in economic activity and employment as well as a reduction in inflation," Fed officials said in a statement.
The new numbers were highly anticipated given inflation readings from sources such as the Bureau of Labor Statistics, which found that consumer prices increased 6.8% for the year ending November — the fastest clip in 39 years. The consumer price index is a different index than the inflation metric preferred by the Fed, which is the personal consumption expenditure price index.
Inflation has exceeded the bounds of most economists’ predictions. Fed Chairman Jerome Powell recently told Congress that he thinks it is the appropriate time to stop referring to the higher prices as merely “transitory."
A recent poll found that U.S. consumers are worried about inflation and are feeling its sting. A Wall Street Journal poll released this month found that 28% of voters believe higher prices are causing “major” financial strain and another 28% believe it is causing minor strain. An additional 32% said that while inflation isn’t a problem for them right now, it will become one if prices keep rising.
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Economists are divided about what is largely driving the higher costs, although it’s likely a combination of the Fed keeping interest rates near zero, trillions in federal stimulus spending, pent-up demand, and issues with supply stemming from labor shortages and supply chain disruptions.