Fed officials were caught off guard by the price pressures, which they argued would fade as the world adjusted to COVID-19. Instead, the pandemic has continued and inflation has soared, fanned by supply-chain bottlenecks and strong demand amid massive fiscal and monetary policy support.
In the FOMC statement, officials removed a prior reference to inflation reflecting factors that were "expected to be transitory." Mr. Powell told lawmakers last month that it was time to "retire" the Fed's description of high inflation as "transitory," a stance it held for most of 2021.
Consumer prices rose 6.8% in the year through November, marking the fastest pace of increase since 1982. In recent months, surging food and energy prices and accelerating rental inflation have contributed more to overall inflation than earlier in the year, when outsize price increases were concentrated largely in the used-car market and a reopening leisure and hospitality sector.
Unemployment dropped to 4.2% in November from 4.6% in October, a quicker pace of recovery than forecasters had anticipated. Still, the gap between white and Black unemployment rates remains wide — at 3.7% and 6.7%, respectively — and Fed officials have said they will take those disparities into account under a new "broad-based and inclusive" approach to judging maximum employment, which they announced last year.
The FOMC's median projection for 2022 inflation was revised to 2.6%, from 2.2% in September. And it now projects the unemployment rate at the end of next year will be 3.5%, vs. 3.8% in September.
Mr. Biden still has three more open seats to fill on the central bank's Board of Governors in Washington and is expected to announce his picks in the coming days. His selections, as well as whoever the Dallas and Boston Fed banks choose to be their next presidents, could play a significant role in the direction the FOMC takes next year.
Those changes also mean the dot plot rate projections released Wednesday reflect the views of several officials who won't be part of the decision-making process as the Fed navigates the next phase of the economic recovery from the pandemic.