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Fed Increases 2023 Rate Target as Inflation Slows; Macro Variables Imply No Recession Now…But Wait for It

Fed Raises End-of-2023 Rate Forecast to 5.1% Citing Slower than Expected Inflation Decline

As it raised the federal funds rate another 50 basis points, the Federal Reserve made several changes to its forecasts including the expectation of its overnight rate ending 2023 at 5.1% instead of 4.6% percent in September. Seventeen of the 19 FOMC participants said risks of inflation are to the upside, suggesting that the committee expects the rate to move even higher. The Fed cited a slower than expected decline of inflation. Though Chairman Jerome Powell played down the risk of recession, the projections also appear to imply an increased risk of a downturn. Powell and company increased their unemployment forecast for next year while also lowering their GDP forecast to a scant 0.5%. History is not on Powell’s side, as an increase in unemployment of more than one percentage point almost always coincides with a recession.