The most recent dot plot was recorded in December and showed the average rate at the end of 2022 at 0.9% compared to 0.3% in September. In 2023, it set the year-end rate at 1.9%. The consensus is that it will rise to around 1.375% for this year (five increases) and 2.125% for 2023. Also watch out for a long-term points hike, although that would be a moderate surprise.
Median GDP was seen at 4.0% this year compared to 3.8% previously. In 2023 it was estimated at 2.2%, down from 2.5%.
As for inflation, PCE inflation was forecast at 2.6% this year and 2.3% in 2023.
Here’s what the FOMC statement of January 26, 2022 said:
The indicators of economic activity and employment continued to strengthen. The sectors most affected by the pandemic have improved in recent months, but have been impacted by the recent sharp rise in COVID-19 cases. Job gains have been solid in recent months and the unemployment rate has dropped significantly. Supply and demand imbalances linked to the pandemic and the reopening of the economy continued to contribute to high levels of inflation. Overall financial conditions remain accommodative, partly reflecting policy measures to support the economy and the flow of credit to US households and businesses.
The path of the economy continues to depend on the progress of the virus. Advances in 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. Risks to the economic outlook remain, including from new variants of the virus.
The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the long term. In support of these goals, the Committee decided to keep the target range for the federal funds rate from 0 to 1/4 percent. With inflation well above 2 percent and a strong labor market, the Committee expects that the federal funds rate target range should soon be increased. The Committee decided to continue to reduce the monthly pace of net asset purchases, completing them in early March. Beginning in February, the Committee will increase its holdings of Treasury securities by at least $ 20 billion per month and agency mortgage-backed securities by at least $ 10 billion per month. The Federal Reserve’s ongoing purchases and holdings of securities will continue to promote smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.
In assessing the appropriate monetary policy stance, the Committee will continue to monitor the implications of the incoming information for the economic outlook. The Committee would be ready to appropriately adjust the monetary policy stance should risks arise that could prevent the achievement of the Committee’s objectives. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflationary pressures and inflation expectations, and financial and international developments.
Jerome H. Powell, chairman, voted in favor of monetary policy action; John C. Williams, vice president; Michelle W. Bowman; Lael Brainard; James Bullard; Esther L. George; Patrick Harker; Loretta J. Mester; and Christopher J. Waller. Patrick Harker voted as an alternate member at this meeting.