Slower growth, higher inflation even if you don’t count oil and food prices:
Fed on Hold Amid Slow Recovery
In updated forecasts released after the meeting, Fed officials lowered their growth forecasts and predicted core inflation would remain higher than previously thought. The economy is now expected to expand at a rate of around 2.7% to 2.9% this year and 3.3% to 3.7% in 2012. That is below estimates given after the last meeting in April for growth of 3.1% to 3.3% in 2011 and 3.5% to 4.2% next year.
The 2011 projection for underlying inflation—stripping out volatile food and energy costs—was raised to between 1.5% and 1.8% from April’s forecast of 1.3% to 1.6%, with core prices expected to ease to 1.4% to 2.0% next year instead of 1.3% to 1.8%. The unemployment rate is expected to decline to 8.6% to 8.9% in 2011 and 7.8% to 8.2% next year, versus previous expectations for a drop to 8.4% to 8.7% and then 7.6% to 7.9% in 2012.
The jobless rate increased to 9.1% in May, a level that would normally call for looser credit. But with underlying inflation also showing the biggest in almost three years, the Fed is in a challenging spot. Consumer prices net of volatile food and energy prices rose to a 1.5% annual rate last month, close to the Fed’s informal target of just under 2.0%.
About the only good news in this is that there won’t be a QE3.
Bloomberg, however, reports
Fed to Maintain Record Stimulus After Ending Treasury Purchases
Fed Chairman Ben S. Bernanke has said record-low interest rates are still needed to spur a recovery that remains “frustratingly slow” two years after the recession ended. Consumer spending has been held back by falling home values, accelerating inflation and an unemployment rate that rose to 9.1 percent last month. At the same time, Bernanke has said growth is likely to pick up as commodity costs recede and factories overcome disruptions of supplies from Japan.
The Fed left its benchmark interest rate in a range of zero to 0.25 percent and repeated a pledge to keep it there “for an extended period.” The decision was unanimous. In his press conference, he said an “extended period” means the Fed is at least two or three meetings from an exit.