Fed makes modest changes to growth projections

The Fed made modest changes to the growth projections, which suggests that it does expect the tightening of financial conditions to be a drag on growth. The Fed expects growth to average 2.1% in 2015. 

With growth in the first half averaging 2.15%, the Fed does not expect any acceleration in H2 15, which is in sharp contrast with consensus forecast of 2.6%. Further, at 2.3% for 2016, the Fed is also more realistic. 

In a similar vein, the Fed modestly lowered the core PCE inflation forecast for 2016 and 2017 but continues to expect a steady move toward the 2%target. On the labor market front, the Fed lowered the unemployment rate forecast but, as we had expected, the long-run projections were lowered as well.

It still expects there to be some slack by the end of this year. Overall, the inflation forecasts are a little optimistic but there is some room for an upside surprise on the growth forecasts, notes Barclays.