Even as the U.S. economy improves, interest rates will not be going up just yet, as core inflationary pressures remain virtually nonexistent. The Federal Reserve said Wednesday that it expects inflation to fall to between 1% and 1.6% next year, a sharp cut from its September forecast of 1.6% to 1.9%. That’s also far below its 2% target for 2015. The inflation numbers are being attributed to rapidly dropping oil and gas prices. The Fed didn’t adjust its 2016 inflation forecast of 1.7% to 2%.
The updated forecasts come after a two-day Fed policy meeting. With the new inflation forecasts, the Fed said in a statement that it “can be patient” on the timing of an interest rate increase, allowing it more room to keep its benchmark rate at nearly zero, a record low. Most economists, however, predict that the Fed will start raising interest rates midway into 2015.
Analysts expect core inflation, which excludes the volatile food and energy categories, to rise between 1.5% and 1.8% next year. The Fed also boosted its forecast for economic growth this year to as much as 2.4%, up from a previous estimate of 2% to 2.2%. The jump reflects a strong expansion pattern of 4.3% from April through September, the healthiest growth rate in a decade.