XINHUA – The United States (US) Federal Reserve (Fed) cut its growth predictions and increased inflation outlook in its latest quarterly summary of economic projections released recently, reflecting its concern over the possible negative impact of tariffs on the economy.
The median gross domestic product (GDP) growth projection for 2025 is 1.7 per cent, down from 2.1 per cent in the December estimate, while Fed officials now expect year-end personal consumption expenditures inflation to reach 2.7 per cent, up from the previous forecast of 2.5 per cent.
“Uncertainty around the economic outlook has increased,” the Federal Open Market Committee, the central bank’s policy-setting body, said in a statement after a two-day meeting.
“This comes at a time when economic uncertainty is “remarkably high,” Fed Chair Jerome Powell said, as the US government implements tariffs on foreign countries. At a press conference on Wednesday afternoon, Powell said that “a good part” of the higher inflation expectation is caused by tariffs, while also acknowledging that it would be “very difficult” to have a precise assessment.
Meanwhile, the Fed left the target range for the federal funds rate unchanged at 4.25 per cent to 4.5 per cent and signalled two cuts later this year.
Many economists believe the US government’s plans to implement or hike tariffs on overseas products run the risk of pushing up prices, at a time when food and rent prices stand at record highs.
However, the US administration argued that the tariffs will rebalance the global economy, fix the nation’s record-high trade deficit, and fill US government coffers.
“The Fed’s position seems very reasonable,” economist and senior fellow at the Brookings Institution Barry Bosworth told Xinhua.
“The outlook has deteriorated because of the tariffs and inflation is no longer slowing. But future policy moves are very uncertain. I think that tariffs will worsen and interest rate reductions seem unlikely,” said Bosworth.
The Fed “reluctantly accepts” that inflation will not fall to the Fed’s mandated two per cent “on its own accord,” said nonresident senior fellow at the Peterson Institute for International Economics Gary Clyde Hufbauer.
The Fed is just waiting to see if the US government’s policies and the resulting recession will lower the inflation rate, Hufbauer said. When asked about recession risks at the press conference, Powell said that a number of forecasters have raised their possibility of a recession somewhat, but “still at relatively moderate levels”.
“Looking ahead, the new administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy,” said Powell.
“Uncertainty around the changes and their effects around the economic outlook is high,” said the Fed Chief.
