Fed Officials See More Rate Rises Coming In 2017

WASHINGTON—Federal Reserve officials now expect to raise short-term interest rate more often next year, amid a little changed economic outlook.Officials penciled in around three rate rises for 2017 that would leave their overnight target rate at a median level of 1.4% for that year, up from 1.1% in forecasts released in September. They see an additional three increases each in 2018 and 2019, with the median rate target at 2.9% for the latter year. The forecasts show less consensus among policy makers about rate actions after next year.

Despite the change in monetary views, officials views on growth, hiring and inflation aren’t much different relative to September. On the inflation front, policy makers still expect to get back to their 2% price target in 2018.

The Fed’s updated forecasts were released as part of their Federal Open Market Committee gathering, held over Tuesday and Wednesday. At that gathering officials met broad expectations that they’d raise their short-term interest rate target, moving from the 0.25% to 0.50% range in place since last December to 0.50% to 0.75%.

The forecasts and interest rate projections released by the Fed are surrounded by greater uncertainty than usual. The unexpected election of Donald Trump and the extension of Republican control over congress portend significant policy changes in the years ahead.

While no one knows what will happen, many observers reckon elected leaders are likely to embark on deficit-fueled spending programs and put in place other changes that could drive economic growth up for a time. That could drive the Fed to raise rates more than it now expects.

Over recent weeks Fed officials have noted they’ll change their respective outlooks when new policies are put in place. They’ve said they are unlikely to change their forecasts based on expectations of what congress and the president might put in place.

On December 6, New York Fed President William Dudley, who also serves as vice chairman of the FOMC, said “it is premature to reach firm conclusions about what will likely occur” under the new administration. “As we get greater clarity over the coming year, I will update my assessment of the economic outlook and, with that, my views about the appropriate stance of monetary policy,” he said then.

In the forecasts, Fed officials now expect the U.S. gross domestic product to come in at 1.9% for this year, versus the 1.8% median estimate from September.

For 2017 officials project GDP at a 2.1% rise, from the prior estimate of 2%.

Policy makers still see the economy’s long-run growth rate at 1.8%.

For 2017, Fed officials median view for what’s now a 4.6% jobless rate moved to 4.7%, versus September’s estimate of 4.8%. In 2018 unemployment is see at 4.5%. Inflation is seen hitting 1.9% next year, matching September’s estimate.

Write to Michael S. Derby at michael.derby@wsj.com
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