Fed slashes inflation forecast for 2015

Christopher S. Rugaber
Associated Press

Washington — The Federal Reserve has sharply cut its forecast for inflation next year, saying it will remain far below its 2 percent target through 2015.

The Fed said Wednesday that it now expects inflation to fall to between 1 percent and 1.6 percent in 2015, down from a previous forecast in September of 1.6 percent to 1.9 percent. The downgrade reflects plummeting oil and gas prices. The Fed kept its 2016 inflation forecast of 1.7 percent to 2 percent.

Policymakers also boosted their forecasts for economic growth this year to as much as 2.4 percent, up from a previous estimate of 2 percent to 2.2 percent. That reflects strong growth of 4.3 percent from April through September, the healthiest pace in a decade.

The Fed updated its economic forecasts after a two-day policy meeting.

The Fed has made a much smaller cut in its forecast for core inflation, which excludes the volatile food and energy categories. It foresees core prices rising between 1.5 percent and 1.8 percent next year, down slightly from 1.6 percent to 1.9 percent in its September projections.

The lower inflation forecast gives the Fed room to keep its benchmark interest rate at its record-low level of nearly zero. Fed policymakers said in a statement that they “can be patient” on the timing of any rate increase. Most economists expect the Fed to start raising rates in mid-2015.

The increase in its 2014 growth forecast is the Fed’s first upgrade in 12 months, since it boosted its 2013 outlook. The Fed has steadily lowered its projections for this year since June 2013, when it forecast growth of about 3.25 percent.