The Federal Reserve has sharply cut its forecast for US growth this year, reflecting a shrinking economy last quarter caused mostly by harsh weather. At the same time, the Fed has barely increased its estimate of inflation despite signs that consumer price increases are picking up. Its benign inflation outlook suggests that the Fed doesn't feel rising pressure to raise short-term interest rates. The Fed updated its economic forecasts today after a two-day policy meeting.
It expects growth to be just 2.1% to 2.3% this year, down from 2.8% to 3% in its last projections in March. It thinks inflation will be a slight 1.5% to 1.7% by year's end, near its earlier estimate. Fed members think short-term rates will remain low in the long run. That may reflect Chair Janet Yellen's view that rates will remain at historically low levels even after the unemployment rate falls back to its longer-term average because the economy may remain weak.