Fed "sees" slower economic growth - Higher inflation expected due to Trump's tariff policies
The Federal Reserve held interest rates steady for the second consecutive meeting, as well as a preliminary forecast for two rate cuts this year.
What the central bank did change, however, was its outlook for inflation and economic growth amid uncertainties stemming from President Trump's plans for an aggressive schedule of new tariffs in addition to those already imposed on China, Canada and Mexico.
Fed officials predict that inflation will remain higher this year than previously estimated and economic growth will be lower.
Policymakers predict that inflation, measured by Personal Consumption Expenditures, will reach 2.8% by the end of 2025, up from the 2.5% previously forecast.
The US economy is forecast to grow at an annual rate of 1.7% instead of 2.1%. The unemployment rate is seen rising to 4.4% from 4.3% previously.
"There are so many things we don't know," Fed Chairman Jerome Powell said at a news conference, and "uncertainty is extremely high." But what is known about tariffs is that they "tend to lower growth and tend to increase inflation."
He acknowledged that the Fed's new view on inflation this year is largely driven by tariffs, but he said the inflationary effect of tariffs will be temporary.
While progress in bringing inflation down to the Fed's target "may be delayed for the time being," Powell noted that officials see the goal still within reach in 2027.
The Fed has now held borrowing costs steady for two consecutive meetings, keeping its benchmark interest rate in a range of 4.25%-4.5%. The pause comes after three consecutive rate cuts through the end of 2024.
The central bank also announced that it will begin to slow the pace of Treasury withdrawals from its balance sheet starting in April, reducing the amount of Treasuries allowed to flow from $25 billion to $5 billion. The Fed, however, will maintain the pace of withdrawals of mortgage-backed securities at $35 billion per month.
Following the central bank's decision not to change rates, US President Donald Trump said it would be better for the Federal Reserve to lower them, "as US tariffs start to trickle into the economy".
The Trump administration's initial policies, including sweeping import tariffs, appear to have tilted the U.S. economy toward slower growth and at least temporarily toward higher inflation, Federal Reserve Chairman Jerome Powell said earlier.
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