Fed lowers its inflation expectations for 2019, keeps growth outlook the same

The Federal Reserve dialed back its inflation forecast for 2019 while keeping the growth expectations unchanged, according to the central bank’s Summary of Economic Projections.

Source: Federal Reserve

The central bank now expects the headline inflation to grow at a slower pace at 1.5%, versus the 1.8% predicted in March. Core inflation, which excludes volatile food and energy prices, was expected to rise by 1.8% this year, compared to the 2% expected previously.

The Federal Open Market Committee acknowledged in its statement Wednesday that inflation is “running below” the Fed’s 2% objective.

GDP growth is still expected to be 2.1% for the year, while the unemployment rate is now expected to hold at a 50-year low of 3.6%, against the March forecast of 3.7%. GDP grew by 3.1% in the first quarter.

The Committee also said in its statement the labor market “remains strong” and the economic activity is rising at a “moderate” rate, a downgrade from a “solid” pace the Fed used at its last meeting.

The U.S. economy has shown signs of slowing recently with job creation drastically decelerated in May while inflation remains consistently below the Fed’s 2% target.

The Fed decided to hold interest rates steady at the conclusion of its policy meeting Wednesday, while indicating there are still no cuts coming in 2019.

In their baseline scenario, FOMC members said they still foresee “sustained expansion of economic activity” and a move toward 2% inflation, but realize that “uncertainties about this outlook have increased.”

—CNBC’s Jeff Cox contributed to this report.