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The Federal Reserve revised its forecast for the US economy on Wednesday, with policymakers divided on the possibility of lowering interest rates this year due to the potential inflation risks posed by Donald Trump’s tariffs.
Fed officials reduced their projections for economic growth and raised their expectations for inflation as the impact of Trump’s trade tariffs reverberates throughout the economy.
The Federal Open Market Committee maintained rates at 4.25-4.5 per cent for the fourth consecutive meeting, despite President Trump’s call for Chair Jay Powell to cut borrowing costs by 2 percentage points.
Powell stated that the Fed is currently in a good position to wait for more economic data before making any policy adjustments, emphasizing the need to prevent a temporary increase in inflation from becoming a long-term issue.
The latest projections show a weaker outlook for the US economy in 2025, with growth expected to be 1.4 per cent, unemployment rising to 4.5 per cent, and inflation increasing to 3 per cent.
While the Fed’s “dot plot” still indicates a median forecast of two rate cuts this year, there is a growing division among officials, with some now ruling out any rate cuts for the remainder of the year.
Economists anticipate a potential increase in inflation in the coming months as a result of tariffs, leading to uncertainty among businesses regarding demand and costs.
Following the Fed’s decision, US markets remained relatively unchanged, with the S&P 500 showing minimal movement and the two-year Treasury yield slightly decreasing.