Fed policymakers see less easing next year than expected

WASHINGTON Reuters -- Federal Reserve policymakers believe that beating back inflation may require just one more interest rate hike this year, but less easing next year than most thought would be appropriate just three months ago.

The Fed's latest quarter summary of economic projections shows that the policy rate is now in the 4.75% - 5.00% range and will increase by 5.1% by the end of the year, according to the median estimate in the Fed's latest quarter of economic projections.

That's the same as the median projection in December, before a slew of stronger than expected readings on growth and inflation, but also before recent turmoil in the banking sector that policymakers expect to weigh on economic growth.

The 18 policymakers were different, with seven policymakers believing that there was a higher appropriate stopping point for rates. One policymaker thought no more rate hikes would be needed.

The median projection shows that the benchmark rate will end next year at 4.3%. Four policymakers were expecting rates to be 5.1% or higher and four expecting rates to be below 4% by the end of the year.

In December, Fed policymakers thought that the Fed policy rate would end at 5.1% by 2023, before dropping to 4.1% in 2024.

Inflation by the Fed preferred measure fell to 3.3% in the final quarter of the year, a slower progress toward the Fed's 2% goal than anticipated in December, according to policymakers.

The personal consumption expenditures price index, the yardstick by which the Fed measures progress, increased by 5.4% in January from a year earlier in the year.

The unemployment rate, now at 3.6%, is expected to go up to 4.5% in the last quarter of 2023 and 4.6% in 2024, according to policymakers. The unemployment rate was seen rising to 4.6% this year three months ago.

An increase in the unemployment rate likely signals a recession, according to a measure known as the Sahm Rule for former Fed staffer Claudia Sahm. Wednesday's projections show that Fed policymakers are slightly more pessimistic about the outlook for the economy, with a median projection for GDP growth this year of 0.4%, compared to December's expectation of 0.5%. They reduced their growth expectation to 1.2% from 1.6% for the year 2024.