Economists once again upgraded their forecasts for US growth, spending and employment, but also see interest rates remaining higher for longer as above-target inflation persists.

The upper boundary of the Federal Reserve’s target range for its benchmark interest rate, currently 5.5%, will fall only to 4% by the end of 2025, according to the latest Bloomberg monthly survey. That’s a half percentage point higher than respondents expected just a month ago. The median projection shows just two quarter-point cuts this year.

“We made a substantial revision to our economic outlook,” Tom Simons, a senior economist with Jefferies, wrote in comments attached to his team’s response. “We also took many of our rate cuts out of the forecast as well, and we now only expect one cut in 2024.”

Economists in the survey reduced the probability of a recession in the next 12 months to 30%, the smallest odds since June 2022 and down from 35% last month.

Respondents now see gross domestic product expanding by 2.4% on average in 2024, up from 2.2% in last month’s survey. The upgrade is driven not only by an uptick in consumer spending but also stronger private investment which forecasters see rising 2.9% on average this year.

That compares with a 2.4% March forecast and is well above the year-ago projection of less than 1%.

The 71 respondents in the Bloomberg survey, conducted April 12-17, predicted the labor market would remain solid, defying earlier expectations that the Fed’s aggressive rate hikes in 2022 and 2023 would raise joblessness.

Economists now say unemployment, currently at 3.8%, will average less than 4% this year and not exceed 4.1% through the third quarter of 2025.

The upgrades for growth and hiring were accompanied by modestly higher forecasts for inflation, as measured by the personal consumption expenditures index — the Fed’s preferred measure. They now see the overall PCE and core price measures ending 2024 at 2.4% and 2.5% respectively, close to where they are now.

Fed officials have made clear they need more convincing evidence that inflation will continue to fall toward their 2% target before they cut rates.

“The strong economy has prevented inflation from continuing on its disinflationary path, which means the Fed will need to wait to cut interest rates,” said Kathy Bostjancic, chief economist at Nationwide Mutual Insurance Co.

This article was provided by Bloomberg News.