US Federal Reserve Slashes Economic Growth Forecasts and Raises Inflation Expectations

Strategic Insights -

The US Federal Reserve has delivered a blow to President Donald Trump by slashing its economic growth forecasts for the next two years and raising inflation expectations. The central bank reduced its forecast for US GDP growth this year from 1.7% to 1.4%, and from 1.8% to 1.6% in 2026, compared to its March projections. Additionally, inflation is expected to rise to 3% in 2025, up from the March forecast of 2.7%.

Key Takeaways:

  • The US Federal Reserve has reduced its economic growth forecast for this year from 1.7% to 1.4% and from 1.8% to 1.6% in 2026.
  • Inflation expectations have risen to 3% in 2025, up from the March forecast of 2.7%.
  • Jerome Powell, the Fed chairman, blamed President Trump's trade war for the increased inflation forecast, citing the impact of tariffs on higher consumer prices.
  • The Fed kept interest rates on hold at 4.25% to 4.5%, which is likely to irritate President Trump, who has repeatedly urged the Fed to cut interest rates.
  • Powell warned that the full impact of Trump's tariffs has not yet been felt, but will become evident in the summer of 2023.
  • The change in inflation expectations is attributed to the effects of tariffs, with a 0.6% increase in inflation forecast for 2025.

Statistics:

  • US GDP growth forecast for this year: 1.4%
  • US GDP growth forecast for 2026: 1.6%
  • Inflation forecast for 2025: 3%
  • Interest rate range: 4.25% to 4.5%
  • Increase in inflation expectation: 0.6% (from 2.7% in March to 3.1% in April)

Sources:

  • Bloomberg
  • Reuters