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Fed Lifts 2026 Inflation Outlook, Cuts Jobless Rate Forecast
(MENAFN) The Federal Reserve revised its 2026 inflation forecasts upward on Wednesday while trimming unemployment projections, pointing to persistent price pressures even as the labor market holds firm.
The median projection for core personal consumption expenditures (PCE) inflation climbed to 3.4% for 2026, up from June's 3.3% estimate, according to the Fed's latest Summary of Economic Projections.
That core gauge, which strips out volatile food and energy costs, is expected to gradually cool to 2.5% in 2027, 2.2% in 2028, and 2% by 2029.
Headline PCE inflation for 2026 was similarly nudged up 0.1 percentage point, to 3.7%. Officials project it will decline to 2.3% in 2027, 2.1% in 2028, before hitting the central bank's 2% target in 2029.
The upward adjustments arrive despite forthcoming methodological revisions from the U.S. Bureau of Economic Analysis, changes economists expect to mechanically drag down measured core PCE inflation once implemented.
Those revisions, scheduled to take effect with annual updates on Sept. 30, touch on how prices are measured for services such as portfolio management, legal work and computer software.
On the labor front, the Fed struck a more optimistic tone. Policymakers lowered their median unemployment forecast for 2026 to 4.1%, down from 4.3%, and now expect the rate to hold steady at 4.1% through 2029 — a shift from June's estimates of 4.3% for 2027 and 4.2% for 2028.
Growth projections saw only modest tweaks. The central bank raised its 2026 real GDP growth forecast to 2.3% from 2.2%, and bumped its 2027 estimate to 2.4% from 2.3%. The 2028 outlook held steady at 2.2%, with growth expected to settle at 2.1% in 2029.
The updated projections coincided with the Fed's move to raise its benchmark interest rate by 25 basis points, setting a new target range of 3.75% to 4% — its first such increase since 2023.
The median projection for core personal consumption expenditures (PCE) inflation climbed to 3.4% for 2026, up from June's 3.3% estimate, according to the Fed's latest Summary of Economic Projections.
That core gauge, which strips out volatile food and energy costs, is expected to gradually cool to 2.5% in 2027, 2.2% in 2028, and 2% by 2029.
Headline PCE inflation for 2026 was similarly nudged up 0.1 percentage point, to 3.7%. Officials project it will decline to 2.3% in 2027, 2.1% in 2028, before hitting the central bank's 2% target in 2029.
The upward adjustments arrive despite forthcoming methodological revisions from the U.S. Bureau of Economic Analysis, changes economists expect to mechanically drag down measured core PCE inflation once implemented.
Those revisions, scheduled to take effect with annual updates on Sept. 30, touch on how prices are measured for services such as portfolio management, legal work and computer software.
On the labor front, the Fed struck a more optimistic tone. Policymakers lowered their median unemployment forecast for 2026 to 4.1%, down from 4.3%, and now expect the rate to hold steady at 4.1% through 2029 — a shift from June's estimates of 4.3% for 2027 and 4.2% for 2028.
Growth projections saw only modest tweaks. The central bank raised its 2026 real GDP growth forecast to 2.3% from 2.2%, and bumped its 2027 estimate to 2.4% from 2.3%. The 2028 outlook held steady at 2.2%, with growth expected to settle at 2.1% in 2029.
The updated projections coincided with the Fed's move to raise its benchmark interest rate by 25 basis points, setting a new target range of 3.75% to 4% — its first such increase since 2023.
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