Monthly macro manual: FOMC expected to keep federal funds rate unchanged

Developments Since Our Annual Economic Outlook

Our real GDP forecast for the United States is, on trend, higher through the end of 2022. We have downwardly revised our forecast for near-term economic growth given the acceleration in COVID cases and accompanying restrictions over the past month. But, the additional fiscal stimulus enacted at the end of 2020 provides more than a full offset from mid-2021 onward.

We have upwardly revised our 2021 year-end target for the 10-year Treasury yield to 1.55%.

We have revised our inflation forecast slightly higher to reflect the additional fiscal stimulus and higher oil prices. Our forecast has the core PCE deflator at 1.8% year-over-year in Q4-2021.

We continue to expect the FOMC to keep the federal funds rate unchanged through at least the end of 2022.

Our 2021 global growth forecast, unlike our U.S. forecast, has seen some downward revisions, most notably in the Eurozone, United Kingdom and Brazil. Even Asia, which has generally kept COVID case counts low compared to other countries, has seen outbreaks worsen recently, with growth forecasts moving down modestly in tandem.

As a result, our forecast for global growth in 2021 is down about two-tenths of a percentage point, partially offset by some upward revisions to growth in 2022.

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