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The economy looks significantly worse now than it was three months ago.
Federal Reserve officials have lowered their expectations for the economy, lowering their growth forecasts and raising unemployment and inflation forecasts, according to documents released Wednesday after the monetary policy meeting of two days of the Fed.
The new projections show that the median expectation is for the economy to grow at an inflation-adjusted rate of 5.9% this year, down from growth expectations of 7% at the June meeting.
In line with the prospect of slower growth, Fed officials are also forecasting higher unemployment than they did earlier this summer. The median forecast for the unemployment rate at the end of the year is 4.8%, down from 4.5% in June.
However, lower growth and higher unemployment should not lower inflation. Rather the opposite. The median forecast for inflation this year has dropped from 3.4% to 4.2%. Core inflation, which excludes food and fuel prices, is now expected to stand at 3.7%, from 3%.
Core and headline inflation are also expected to be slightly higher next year, then to 2.1% in 2024.
GDP growth for 2023 has been revised up, indicating that Fed officials believe supply chain disruptions will push growth back into the future rather than creating a permanent drag. Unemployment forecasts beyond next year remained unchanged.
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