Federal Reserve officials have revised their outlook, projecting slower economic growth while anticipating higher inflation. Their new forecast sees gross domestic product expanding by just 1.7% this year, down from the 2.1% estimate issued in December. At the same time, core inflation—the measure that excludes volatile food and energy prices—has been revised up to an annual rate of 2.8%, compared with 2.5% in the prior projection. The combination of weaker growth and rising inflation has raised concerns about stagflation among policymakers and market observers.
Federal Reserve Chair Jerome Powell said inflation “has started to move up,” and he pointed to tariffs as one factor contributing to upward pressure on prices. Despite describing the overall economic picture as generally solid, Powell also warned of “significant concerns about downside risks,” reflecting uncertainty about growth momentum going forward.
At its most recent meeting, the Federal Open Market Committee held the target range for the federal funds rate at 4.25%–4.50%. While the Fed continues to expect two rate cuts in 2025, the committee’s tone has shifted toward a more hawkish stance. The number of officials preferring no change to policy this year rose to four, compared with a single dissenting member in January, signaling greater caution about easing monetary policy too soon.
The Fed’s forecasts and commentary also flagged the potential effects of new tariff policies. Higher tariffs tend to increase import costs, which can feed through to consumer prices and, in turn, reduce household purchasing power. That dynamic could weigh on consumer spending, further slowing economic growth while keeping inflation elevated.
In summary, the Fed’s updated projections reflect a slower-growth, higher-inflation outlook that has prompted heightened vigilance among policymakers. With a steady interest-rate setting for now and expectations of limited easing next year, officials are balancing the risk that persistent price pressures could undermine growth against the need to avoid tightening too much and tipping the economy into recession.