US Fed cuts growth outlook, lifts inflation forecasts ‘partly’ on Trump tariffs
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The news: The US Federal Reserve kept its benchmark interest rate steady at 4.25%-4.5% and flagged growing uncertainty over the economic outlook as policymakers raised inflation projections and lowered growth forecasts.
Officials still anticipate cutting rates by half a percentage point this year, but divisions have widened, with more policymakers expecting just one or no cuts.
The Fed also announced it will slow the pace of its balance sheet reduction, cutting the monthly cap on Treasury runoff from USD25 billion to USD5 billion.
The numbers: The median estimate of the Fed’s 19 policymakers for 2025 GDP growth was lowered to 1.7% from 2.1%, while inflation is now expected to end the year at 2.7%, up from 2.5%, partly due to President Donald Trump’s tariffs. The Fed also raised its unemployment forecast to 4.4% by year-end, from 4.3.
Although the median Fed forecast still points to cuts worth 50 basis points this year, projections have become more divided.
Nine policymakers now expect two cuts, down from 10 in December. The number of officials predicting one or no cuts doubled to eight, from four previously. And only two policymakers foresee three cuts, down from five.
Markets rallied, with stocks rising and bond yields falling.
What they said: Chair Jerome Powell said the world's largest economy remains “strong overall” but faces “unusually elevated” uncertainty. He noted tariffs are likely contributing to inflation but called the effect “transitory.”
He said the bank is in “no hurry” to adjust rates and will wait for greater clarity on the impact of Trump’s policies.
“We do understand that sentiment has fallen off pretty sharply but economic activity has not,” Powell said, adding the economy still seemed healthy.
“Sentiment is quite negative at this time, and that probably has to do with turmoil at the beginning of an administration. It's making big changes in areas of policy, and that's probably part of it. I do think the underlying unhappiness people have about the economy, though, is more about the price level.”
The sources: US Fed statement, US Fed projections, Bloomberg
