After its first rate hike in three years on Sept. 16, the Federal Reserve is betting that anchored inflation expectations can slow price increases without raising unemployment. PCE inflation is 3.7%; officials project it will remain above the 2% target until 2029.
Officials’ median projections keep unemployment at 4.1% through 2029 even as PCE inflation declines. They say expectations remain anchored near the 2% target, and some price pressures may ease if tariff and energy shocks subside. Chicago Fed President Austan Goolsbee argued that reducing inflation ultimately requires lower demand, output and employment.
The Fed projected one more 0.25-percentage-point rate hike this year, with officials divided on further moves; investors expected three more quarter-point increases over the next five meetings through April. An August PCE report due next week and signs of stronger demand, including AI-related price pressures, could shape the Fed’s response.
