The Federal Reserve has revised its US growth outlook downward while raising its inflation forecast, highlighting apprehensions that Donald Trump’s tariffs and significant reductions in government spending may affect the largest economy in the world.
According to the Fed’s latest projections, officials now anticipate GDP growth of 1.7 percent for this year, with an inflation rise projected at 2.7 percent. At the conclusion of a two-day meeting on Wednesday, policymakers also decided to maintain the central bank’s primary interest rate.
This update represents a notable change from December, when the Federal Open Market Committee, responsible for setting policy at the central bank, predicted 2.1 percent growth for 2025 and estimated that the widely monitored personal consumption expenditures inflation index would conclude the year at 2.5 percent.
US stock markets have experienced a sharp decline in recent weeks, as surveys indicate that consumers and businesses are increasingly concerned about Trump’s tariffs on the nation’s top trading partners. Business leaders have recently remarked on a noticeable cooling in demand throughout the economy, with additional signs emerging that prices for crucial industrial goods are on the rise.
In a statement released on Wednesday, after US rate-setters opted to keep the target range for the benchmark federal funds rate between 4.25 percent and 4.5 percent, the FOMC remarked: “Uncertainty surrounding the economic outlook has escalated.”
According to Torsten Slok, chief economist at Apollo investment firm, the Fed has “essentially signalled that we are experiencing a stagflation economy, characterized by lower growth and higher inflation; this was the implication of their forecast revisions.”
The most recent dot plot projections indicate that Fed officials broadly foresee one or two additional quarter-point rate cuts this year—the same expectation as in December—following a 1 percentage point reduction in 2024. However, four FOMC members now predict no rate cuts this year, an increase from one member’s prediction in December.
Investors are anticipating between two and three quarter-point cuts by the end of 2025.
Additionally, the Fed announced a slowdown in its quantitative tightening program, reducing the monthly roll-off of US Treasury debt from $25 billion to $5 billion starting in April.
Fed governor Christopher Waller opposed the decision to decelerate quantitative tightening, asserting that the current rate of decline at $25 billion per month continues to be suitable.
All voting FOMC members endorsed the decision to keep interest rates steady.
