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MNI BRIEF:Cleveland Fed Paper Sees Inflation Higher For Longer

U.S. inflation is seen only very gradually falling back to 2% and is projected to still be nearly 2.7% by the end of 2025, far above the Fed's December SEP median projection of 2.1%, Cleveland Fed economists wrote in a paper published Friday.

"Inflation is going to remain higher for longer: rather than core PCE inflation reaching 2.1% by the end of 2025, our model projects that it will be at 2.8%, with the 70% confidence interval spanning 2.4 to 3.2%," according to the paper by economists Randal Verbrugge and Saeed Zaman. Core goods prices are seen turning negative through 2025 and core services ex-housing are seen falling to only 3.8% by the end of 2023 and 3.4% by 2024. Housing prices are projected to fall steadily but then stall at a 4.5% pace in 2025.

(See: MNI INTERVIEW: US CPI Rent Costs To Gain Momentum - Fed Economist)

The paper also looks at how inflation fares under three unemployment rate scenarios. "A deep recession would be necessary to achieve the SEP’s projected inflation path," they write, but a recession would not be optimal. A moderate recession would put inflation at 2.4% by the end of 2025 and a soft landing would put inflation a touch above 2.8% by the end of 2025, according to the paper.

Source: Cleveland Fed

MNI Washington Bureau | +1 202-371-2121 | evan.ryser@marketnews.com
MNI Washington Bureau | +1 202-371-2121 | evan.ryser@marketnews.com

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