Federal Reserve (Fed) policymakers on Wednesday considerably raised their expectations for inflation this year and signalled they expect to raise interest rates by late 2023, sooner than they anticipated in March, as the economy recovers rapidly from the effects of the pandemic and inflation heats up. However, the central bank gave no indication as to when it will begin cutting back on its aggressive bond-buying programme, although Fed chairman Jerome Powell acknowledged that officials discussed the issue at the meeting.

The forecast for higher rates in 2023 comes as the median estimate for gross domestic product growth in the year was raised to 2.4 per cent from the 2.2 per cent forecast in March. Core consumer price inflation is still expected to increase by 2.1 per cent in 2023.

Meanwhile, inflation in the eurozone rose to the highest level in more than two years after economies across the region started to lift coronavirus restrictions and rebounding demand exacerbated supply bottlenecks.

Consumer prices rose by an annual rate of two per cent in May, more than economists predicted, from 1.6 per cent in April, with energy prices gaining the most from a year ago when the region was in full lockdown. Germany, Spain and Italy − three of the four largest eurozone economies − all reported price increases. The European Central Bank targets inflation “below, but close to” two per cent.

Finally, in the UK, unemployment fell for the fourth consecutive month in April as businesses took on more staff in response to the relaxation of COVID-19 restrictions.

The Office for National Statistics said on Tuesday that the jobs market showed further signs of recovery as non-essential shops and hospitality venues were allowed to open outdoors.  The unemployment rate fell to 4.7 per cent in the three months to April, representing about 1.6 million people, in a modest improvement from the 4.8 per cent rate registered in the three months to March. But this remains 553,000 below the levels recorded before the COVID-19 pandemic struck.

Separately, UK inflation unexpectedly jumped above the Bank of England’s target in May when it hit 2.1 per cent, part of a post-lockdown rise in prices that is expected to gather momentum.

This article was prepared by Bank of Valletta for general information purposes only.