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E-mail Xinhua, March 20, 2025
by Matthew Rusling
WASHINGTON, March 20 (Xinhua) -- The U.S. Federal Reserve cut its growth predictions and increased inflation outlook in its latest quarterly summary of economic projections released Wednesday, reflecting its concern over the possible negative impact of tariffs on the economy.
The median GDP growth projection for 2025 is 1.7 percent, down from 2.1 percent in the December estimate, while Fed officials now expect year-end personal consumption expenditures inflation to reach 2.7 percent, up from the previous forecast of 2.5 percent.
"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 U.S. 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 percent to 4.5 percent and signaled two cuts later this year.
Many economists believe the U.S. 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 U.S. administration argued that the tariffs will rebalance the global economy, fix the nation's record-high trade deficit, and fill U.S. government coffers.
"The Fed's position seems very reasonable," Barry Bosworth, economist and senior fellow at the Brookings Institution, 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 2 percent "on its own accord," said Gary Clyde Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics.
The Fed is just waiting to see if the U.S. 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.
Dean Baker, a senior economist at the Center for Economic and Policy Research, believes that the Fed is being very cautious.
"The uncertainty created both by the threat of tariffs and funding prospects from the government are likely to seriously dampen growth," Baker said. "My guess is that we do see big tariffs, which will up inflation, and cause the Fed to put off any cuts."
Trump campaigned on curbing the worst inflation in decades, which began under the previous administration. However, some experts worry that tariffs could push inflation higher, making it more difficult to achieve this goal.
The tariffs could be a major vulnerability if they reignite inflation, said Darrell West, as senior fellow at Brookings Institution, adding that as more countries impose their own tariffs, it will increase costs for U.S. consumers and create political challenges for the administration.
High costs were one of the primary reasons the administration of former President Joe Biden lost the 2024 elections, so rising prices would be catastrophic for the current U.S. administration, said West. Enditem
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